Tax legal updates from Shoosmiths LLPhttps://www.shoosmiths.co.uk/rss/5644.aspxTax legal updates from Shoosmiths LLPen-GBShoosmithshttps://www.shoosmiths.co.uk/-/media/shoosmiths/shoosmiths-rss-image.jpg?h=144&w=144Tax legal updates from Shoosmiths LLPhttps://www.shoosmiths.co.uk/rss/5644.aspx60{9E22CD62-4C35-4253-802C-0B2EE1F239AA}https://www.shoosmiths.co.uk/client-resources/legal-updates/major-change-the-vat-reverse-charge-for-building-and-construction-services.aspxMajor change: the VAT reverse charge for building and construction servicesThe domestic reverse charge - referred to as the reverse charge - is a major change to the way VAT will be collected in the building and construction industry.Tue, 06 Aug 2019 00:00:00 +0100<![CDATA[Kate Garcia and Caroline Airey]]><![CDATA[The domestic reverse charge - referred to as the reverse charge - is a major change to the way VAT will be collected in the building and construction industry.]]>{5358B04F-D717-4C43-A6D4-27A192E5D995}https://www.shoosmiths.co.uk/client-resources/legal-updates/corporate-offence-failure-prevent-facilitation-tax-evasion-13344.aspxNew corporate offences introduced: Failure to prevent the facilitation of tax evasion The new corporate offences of 'failure to prevent the facilitation of tax evasion' under the Criminal Finances Act 2017 came into effect on 30 September 2017. These offences widen the existing regime by introducing strict liability offences for companies who do not have adequate prevention procedures in place. The new offences are part of the government's wider aim to combat tax evasion and tackle the perceived corporate culture of turning a blind eye to tax related offences. Under the previous regime, senior members of a company (such as board directors) had to be aware that illegal tax evasion activities were taking place in order for companies to be found criminally liable. However, under the new legislation, companies may be criminally liable even if they do not have actual knowledge of the illegal activity being committed. Two new offences are introduced. Failure to prevent facilitation of UK tax evasion The Criminal Finances Act 2017 (the "Act") introduces a strict liability offence for companies (and partnerships) if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with the company and the company fails to prevent this. Associated person - is defined widely under the act. It not only covers employees of the company, but also agents or any other person or entity who performs services on behalf of the company, such as out-sourced service providers and sub-contractors. UK tax evasion facilitation offence - the associated person must have committed an offence of facilitation of tax evasion. This offence is made up of: Criminal tax evasion by a third party taxpayer (either an individual or a corporate entity). Tax evasion comprises the offence of cheating the public revenue or any other UK offence of fraudulently evading tax; The associated person deliberately and dishonestly facilitating the tax payer to evade tax. For example, a lawyer or accountant acting in their capacity as a person associated with the company drafts documents to deliberately aid the third party to evade tax. The facilitation must be deliberate or dishonest - if the associated person was negligent or was not aware they were facilitating tax evasion then no offence is committed. Failure to prevent the offence - As the offence is one of strict liability, if the company's employee, agent or other associated person has deliberately and dishonestly facilitated the evasion of tax by a third party, then the relevant company is guilty of the offence, unless it can prove the existence of reasonable prevention procedures Failure to prevent facilitation of foreign tax evasion The act also introduces the offence of failing to prevent facilitation of overseas tax fraud, which is broadly the same as the UK offence but is narrower in scope - the offence only applies if: The relevant body who failed to prevent the facilitation offence has a 'UK Nexus', meaning it is (i) a UK incorporated company; (ii) an overseas company with a branch located in the UK; or (iii) an overseas company whose associated person is located within the UK at the time they criminally facilitate the evasion of foreign tax. There is 'dual criminality', meaning that both the tax evasion and the facilitation must constitute criminal offences in the UK and in the foreign jurisdiction. The foreign jurisdiction must have equivalent offences at the tax-payer and facilitator level, conversely if the foreign jurisdiction takes a particularly strict approach and criminalises activity that is not illegal in the UK then no offence is committed. Steps your business should take reasonable prevention procedures In a similar vein to the Bribery Act 2010, the only defence to these strict liability offences is the implementation of reasonable prevention procedures to prevent the criminal facilitation of tax evasion by an associated person (except where it is unreasonable to expect such procedures to be in place). The government guidance published on 1 September 2017 suggests that companies should: Conduct a risk assessment of their domestic and international business to ascertain who its associated persons are and if any of these pose a risk of facilitating tax evasion. Companies exposed to high risk are encouraged to undertake more extensive due diligence - such companies may include those undertaking transactions in countries which lack adequate anti-corruption and money laundering legislation, or a tax advisory businesses engaging in complex tax planning structures. Implement reasonable preventative procedures. What is reasonable will depend on the level of risk the company is exposed to, as well as the size, complexity and scale of the business's activities. Examples of procedures will include the introduction of internal and external training and communication programmes so that policies and procedures are understood throughout the organisation, the introduction of self-reporting and whistleblowing procedures and an active management commitment to foster a zero tolerance culture. Monitor and review internal procedures on an on-going basis. Companies may wish to review existing contracts with third party 'associated persons'. Penalties for non-compliance Companies found guilty of either of the offences may be required to pay an unlimited fine. Our lawyers are experienced in all aspects of corporate compliance. If you wish to understand the impact of the regulations on your business or require legal advice please contact Dan Stowers in the regulatory team or Kate Featherstone in the tax team who will be happy to assist. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.Mon, 02 Oct 2017 00:00:00 +0100<![CDATA[Dan Stowers Kate Featherstone ]]><![CDATA[ The new corporate offences of 'failure to prevent the facilitation of tax evasion' under the Criminal Finances Act 2017 came into effect on 30 September 2017. These offences widen the existing regime by introducing strict liability offences for companies who do not have adequate prevention procedures in place. The new offences are part of the government's wider aim to combat tax evasion and tackle the perceived corporate culture of turning a blind eye to tax related offences. Under the previous regime, senior members of a company (such as board directors) had to be aware that illegal tax evasion activities were taking place in order for companies to be found criminally liable. However, under the new legislation, companies may be criminally liable even if they do not have actual knowledge of the illegal activity being committed. Two new offences are introduced. Failure to prevent facilitation of UK tax evasion The Criminal Finances Act 2017 (the "Act") introduces a strict liability offence for companies (and partnerships) if a person commits a UK tax evasion facilitation offence when acting in the capacity of a person associated with the company and the company fails to prevent this. Associated person - is defined widely under the act. It not only covers employees of the company, but also agents or any other person or entity who performs services on behalf of the company, such as out-sourced service providers and sub-contractors. UK tax evasion facilitation offence - the associated person must have committed an offence of facilitation of tax evasion. This offence is made up of: Criminal tax evasion by a third party taxpayer (either an individual or a corporate entity). Tax evasion comprises the offence of cheating the public revenue or any other UK offence of fraudulently evading tax; The associated person deliberately and dishonestly facilitating the tax payer to evade tax. For example, a lawyer or accountant acting in their capacity as a person associated with the company drafts documents to deliberately aid the third party to evade tax. The facilitation must be deliberate or dishonest - if the associated person was negligent or was not aware they were facilitating tax evasion then no offence is committed. Failure to prevent the offence - As the offence is one of strict liability, if the company's employee, agent or other associated person has deliberately and dishonestly facilitated the evasion of tax by a third party, then the relevant company is guilty of the offence, unless it can prove the existence of reasonable prevention procedures Failure to prevent facilitation of foreign tax evasion The act also introduces the offence of failing to prevent facilitation of overseas tax fraud, which is broadly the same as the UK offence but is narrower in scope - the offence only applies if: The relevant body who failed to prevent the facilitation offence has a 'UK Nexus', meaning it is (i) a UK incorporated company; (ii) an overseas company with a branch located in the UK; or (iii) an overseas company whose associated person is located within the UK at the time they criminally facilitate the evasion of foreign tax. There is 'dual criminality', meaning that both the tax evasion and the facilitation must constitute criminal offences in the UK and in the foreign jurisdiction. The foreign jurisdiction must have equivalent offences at the tax-payer and facilitator level, conversely if the foreign jurisdiction takes a particularly strict approach and criminalises activity that is not illegal in the UK then no offence is committed. Steps your business should take reasonable prevention procedures In a similar vein to the Bribery Act 2010, the only defence to these strict liability offences is the implementation of reasonable prevention procedures to prevent the criminal facilitation of tax evasion by an associated person (except where it is unreasonable to expect such procedures to be in place). The government guidance published on 1 September 2017 suggests that companies should: Conduct a risk assessment of their domestic and international business to ascertain who its associated persons are and if any of these pose a risk of facilitating tax evasion. Companies exposed to high risk are encouraged to undertake more extensive due diligence - such companies may include those undertaking transactions in countries which lack adequate anti-corruption and money laundering legislation, or a tax advisory businesses engaging in complex tax planning structures. Implement reasonable preventative procedures. What is reasonable will depend on the level of risk the company is exposed to, as well as the size, complexity and scale of the business's activities. Examples of procedures will include the introduction of internal and external training and communication programmes so that policies and procedures are understood throughout the organisation, the introduction of self-reporting and whistleblowing procedures and an active management commitment to foster a zero tolerance culture. Monitor and review internal procedures on an on-going basis. Companies may wish to review existing contracts with third party 'associated persons'. Penalties for non-compliance Companies found guilty of either of the offences may be required to pay an unlimited fine. Our lawyers are experienced in all aspects of corporate compliance. If you wish to understand the impact of the regulations on your business or require legal advice please contact Dan Stowers in the regulatory team or Kate Featherstone in the tax team who will be happy to assist. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given.]]>{04D923CD-21E5-4C13-A69D-895279D08302}https://www.shoosmiths.co.uk/news/press-releases/spring-budget-2017-experts-comment-12571.aspxSpring Budget 2017 - Shoosmiths&#39; experts comment Today marked the last Spring Budget and Philip Hammond's first Budget as chancellor. Our legal experts comment on the plans unveiled around technology and connectivity, what more funding in to academia will mean for business, employment practices ('returnships' in particular), and reforms to pensions and tax. Corporate Alastair Peet, corporate partner commented on the opportunities the £270m fund for the tech industry will bring to the UK and to investors: 'The Chancellor's announcement of a £270 million fund to help develop Artificial Intelligence, biotech enterprise and driverless cars will be seen as a welcome boost by start-ups and established companies alike. The announcement can also be taken as an acknowledgement by the government that the UK has considerable talent in the tech industry that warrants sufficient support to develop it. The UK is the world leader for AI start-ups and this has been evidenced by global tech giants snapping up UK-based AI start-ups such as Microsoft buying Touchtype and Apple acquiring VocalIQ. 'It is possible this kind of fund will help to stimulate more venture capital investment too, as money for development means more opportunities for UK-based and overseas investors to invest in new platforms and products. 'This announcement gives assurance to those operating in and around tech that the government is taking seriously all of the opportunities that AI will bring, and is preparing for a more connected country in an increasingly globalised world. Tax Kate Featherstone, tax partner, comments on proposed tax reforms: 'A shake-up of the tax treatment for those who are self-employed or choose to work through a personal service company has been threatened for some time and, in his Spring Budget 2017, Phillip Hammond took steps to address the disparity between the taxation of employees and the self-employed. 'Amendments to the State Pension mean there is now little justification for the self-employed to pay less tax than the employed. While the government are keen to encourage entrepreneurialism and self-employment, they do not want tax savings to be the sole motivation for an individual to choose to be self-employed as opposed to employed. The following changes were therefore announced. The self-employed 'An increase of the main rate of Class 4 National Insurance Contributions from 9% to 10% in April 2018 (and then 11% in April 2019) increases the tax burden on self-employed individuals with profits over £16,250.' Working through a personal service company 'The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. Those who provide their services through their own personal service company will, from April 2018, have to pay tax on any dividends over £2,000, thereby reducing the tax advantages of providing services in this manner.' Employment Antonia Blackwell, senior associate in the employment team, commented on the chancellor's announcement to support 'returnships': 'Today's budget has limited impact in the sphere of employment law. However, it is encouraging to see the Chancellor recognise the need for individuals to have the opportunity to retrain and upskill at all points in their life. To achieve this the Government has stated its intention to work with business groups and public sector organisations to identify how best to increase the number of returnships, supported by £5 million of new funding. Returnships offer people who have taken lengthy career breaks a clear route back to employment. In addition, as part of its commitment to ensuring public services deliver for everyone, the government has agreed to create a new £5 million centenary fund for projects to celebrate the centenary of voting rights being extended to women for the first time in 1918, such as to educate young people about its significance. Commercial TMC Joe Stephenson, senior associate in the TMC team comments on plans for the UK's digital infrastructure: 'As heavily trailed in the press, this, the final spring budget, introduces a raft of measures intended to boost Britain's public and private engagement in digital infrastructure. 'In a Budget characterised by cautious spending, the Chancellor's announcement of a £270 million fund to support development of AI, biotech enterprise and driverless cars is a clear indication of government focus on a high-tech and connected post-Brexit British economy. 'In a nod to the National Infrastructure Commission's Connected Future report, the Budget also includes details of: UK government-backed fibre and 5G trials, including preparedness across Britain's roads, railways and city centres; aggressive promises in relation to digital connectivity across the United Kingdom, including a £200 million fund for fibre broadband projects; new funding to support STEM subjects at university level, including a £300 million research fund and 1,000 new PhD places; and (predictably) promises of post Brexit openness. 'If this Budget's overriding aim is to demonstrate a Britain strong outside of the EU, the object for digital is a clear message that the United Kingdom remains open for global, tech driven business. A potentially challenging balance to strike. 'Whilst the above demonstrates a strong, tangible prioritisation of digital infrastructure concerns, it is important to interpret all spending in light of the Government's broader deficit reduction objective. As the difficulties surrounding the rural broadband role out have demonstrated, infrastructure spend can often take a backseat in times of political and economic uncertainty.' Shoosmiths commercial partner Andy Brennan, also comments on the chancellors plans to pump more funding in to academia: 'The chancellor has just announced he is allocating £300m to support the brightest research talent, including for 1,000 PhD students in STEM subjects, including maintenance loans for part time undergraduates and doctoral loans in all subjects for the first time. 'These plans signal a firm commitment to extract the very best talent the UK has got to give. It also links in with the government's wider industrial strategy, representing a further commitment to research and innovation and the knowledge economy. 'The long-term aim of giving greater access to higher education at PHD and Doctoral level is to boost the prospect of a thriving economy. Lifelong learning will help more people get higher skilled jobs and will no doubt present greater opportunities for more high growth and technology led businesses to flourish, creating benefits for all.' Pensions Paul Carney, pensions partner at Shoosmiths comments on the chancellor's crack-down tax avoidance and plans surrounding master trusts: Preventing tax avoidance 'The chancellor has announced measures which are intended to prevent tax avoidance through the use of overseas pension schemes/ arrangements. It has been possible to transfer funds from a UK pension scheme to an overseas scheme provided that that scheme is included on a government published list of qualifying recognised overseas pension scheme (QROPS). The intention is to introduce a 25% tax charge on transfers to QROPS and, the government states, the idea is to target '...those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction". Exceptions apply where (let's say) there is a good (i.e. genuine) reason for the transfer so; those seeking to emigrate and take their pension monies with them to their new country should be ok.' Master trusts 'Over the last few years, there has been a growth in the number of and use of master trust pension schemes; master trusts are (as the name indicates) trust-based pension schemes constituted as multi-employer schemes for employers which are not associated with each other. The government has previously expressed concern about the regulation of such schemes and has confirmed that it will change the tax registration process for them. The intention is to make the process for the registration of master trusts consistent with the Pension Regulator's new authorisation and supervision regime.' Wed, 08 Mar 2017 00:00:00 Z<![CDATA[ Today marked the last Spring Budget and Philip Hammond's first Budget as chancellor. Our legal experts comment on the plans unveiled around technology and connectivity, what more funding in to academia will mean for business, employment practices ('returnships' in particular), and reforms to pensions and tax. Corporate Alastair Peet, corporate partner commented on the opportunities the £270m fund for the tech industry will bring to the UK and to investors: 'The Chancellor's announcement of a £270 million fund to help develop Artificial Intelligence, biotech enterprise and driverless cars will be seen as a welcome boost by start-ups and established companies alike. The announcement can also be taken as an acknowledgement by the government that the UK has considerable talent in the tech industry that warrants sufficient support to develop it. The UK is the world leader for AI start-ups and this has been evidenced by global tech giants snapping up UK-based AI start-ups such as Microsoft buying Touchtype and Apple acquiring VocalIQ. 'It is possible this kind of fund will help to stimulate more venture capital investment too, as money for development means more opportunities for UK-based and overseas investors to invest in new platforms and products. 'This announcement gives assurance to those operating in and around tech that the government is taking seriously all of the opportunities that AI will bring, and is preparing for a more connected country in an increasingly globalised world. Tax Kate Featherstone, tax partner, comments on proposed tax reforms: 'A shake-up of the tax treatment for those who are self-employed or choose to work through a personal service company has been threatened for some time and, in his Spring Budget 2017, Phillip Hammond took steps to address the disparity between the taxation of employees and the self-employed. 'Amendments to the State Pension mean there is now little justification for the self-employed to pay less tax than the employed. While the government are keen to encourage entrepreneurialism and self-employment, they do not want tax savings to be the sole motivation for an individual to choose to be self-employed as opposed to employed. The following changes were therefore announced. The self-employed 'An increase of the main rate of Class 4 National Insurance Contributions from 9% to 10% in April 2018 (and then 11% in April 2019) increases the tax burden on self-employed individuals with profits over £16,250.' Working through a personal service company 'The tax-free dividend allowance will be reduced from £5,000 to £2,000 from April 2018. Those who provide their services through their own personal service company will, from April 2018, have to pay tax on any dividends over £2,000, thereby reducing the tax advantages of providing services in this manner.' Employment Antonia Blackwell, senior associate in the employment team, commented on the chancellor's announcement to support 'returnships': 'Today's budget has limited impact in the sphere of employment law. However, it is encouraging to see the Chancellor recognise the need for individuals to have the opportunity to retrain and upskill at all points in their life. To achieve this the Government has stated its intention to work with business groups and public sector organisations to identify how best to increase the number of returnships, supported by £5 million of new funding. Returnships offer people who have taken lengthy career breaks a clear route back to employment. In addition, as part of its commitment to ensuring public services deliver for everyone, the government has agreed to create a new £5 million centenary fund for projects to celebrate the centenary of voting rights being extended to women for the first time in 1918, such as to educate young people about its significance. Commercial TMC Joe Stephenson, senior associate in the TMC team comments on plans for the UK's digital infrastructure: 'As heavily trailed in the press, this, the final spring budget, introduces a raft of measures intended to boost Britain's public and private engagement in digital infrastructure. 'In a Budget characterised by cautious spending, the Chancellor's announcement of a £270 million fund to support development of AI, biotech enterprise and driverless cars is a clear indication of government focus on a high-tech and connected post-Brexit British economy. 'In a nod to the National Infrastructure Commission's Connected Future report, the Budget also includes details of: UK government-backed fibre and 5G trials, including preparedness across Britain's roads, railways and city centres; aggressive promises in relation to digital connectivity across the United Kingdom, including a £200 million fund for fibre broadband projects; new funding to support STEM subjects at university level, including a £300 million research fund and 1,000 new PhD places; and (predictably) promises of post Brexit openness. 'If this Budget's overriding aim is to demonstrate a Britain strong outside of the EU, the object for digital is a clear message that the United Kingdom remains open for global, tech driven business. A potentially challenging balance to strike. 'Whilst the above demonstrates a strong, tangible prioritisation of digital infrastructure concerns, it is important to interpret all spending in light of the Government's broader deficit reduction objective. As the difficulties surrounding the rural broadband role out have demonstrated, infrastructure spend can often take a backseat in times of political and economic uncertainty.' Shoosmiths commercial partner Andy Brennan, also comments on the chancellors plans to pump more funding in to academia: 'The chancellor has just announced he is allocating £300m to support the brightest research talent, including for 1,000 PhD students in STEM subjects, including maintenance loans for part time undergraduates and doctoral loans in all subjects for the first time. 'These plans signal a firm commitment to extract the very best talent the UK has got to give. It also links in with the government's wider industrial strategy, representing a further commitment to research and innovation and the knowledge economy. 'The long-term aim of giving greater access to higher education at PHD and Doctoral level is to boost the prospect of a thriving economy. Lifelong learning will help more people get higher skilled jobs and will no doubt present greater opportunities for more high growth and technology led businesses to flourish, creating benefits for all.' Pensions Paul Carney, pensions partner at Shoosmiths comments on the chancellor's crack-down tax avoidance and plans surrounding master trusts: Preventing tax avoidance 'The chancellor has announced measures which are intended to prevent tax avoidance through the use of overseas pension schemes/ arrangements. It has been possible to transfer funds from a UK pension scheme to an overseas scheme provided that that scheme is included on a government published list of qualifying recognised overseas pension scheme (QROPS). The intention is to introduce a 25% tax charge on transfers to QROPS and, the government states, the idea is to target '...those seeking to reduce the tax payable by moving their pension wealth to another jurisdiction". Exceptions apply where (let's say) there is a good (i.e. genuine) reason for the transfer so; those seeking to emigrate and take their pension monies with them to their new country should be ok.' Master trusts 'Over the last few years, there has been a growth in the number of and use of master trust pension schemes; master trusts are (as the name indicates) trust-based pension schemes constituted as multi-employer schemes for employers which are not associated with each other. The government has previously expressed concern about the regulation of such schemes and has confirmed that it will change the tax registration process for them. The intention is to make the process for the registration of master trusts consistent with the Pension Regulator's new authorisation and supervision regime.' ]]>{0A2D7201-8784-4422-81C2-9CF7404727B5}https://www.shoosmiths.co.uk/services/tax-84.aspxTax /* use [h]text[/h] to hightlight word [nl] for new line */ var carousel_data = [ // img: "PATH TO BACKGROUND IMG", title: "Title [h]hightline[/h] [nl]new line [h]highlight[/h]", sig: "button right sig", LinkText: 'This is a link (OPTIONAL)', Link: '#test (OPTIONAL)', textPos: "right/left (OPTIONAL)", color:"white-text (OPTIONAL)" { img: "/images/EISA-Awards-TaxPage.jpg", title: "'Highly Commended' at EISA Awards", alt: "", LinkText: 'Read more', Link: '/news/press-releases/shoosmiths-highly-commended-EISA-awards-12464.aspx', textPos: "left", color:"white-text" } ]; $(function () { $.each(carousel_data, function (i, item) { if (i > 0) { item.printClass = "no-print"; } item.title = item.title.replace(/\[h\]/g, '<span>'); item.title = item.title.replace(/\[\/h\]/g, '</span>'); item.title = item.title.replace(/\[nl\]/g, '<br>'); }); $(".js-carousel-large .items").html($("#carousel-simple-template").render(carousel_data)); $('.text-float h2').html(carousel_data[0].title); if (carousel_data[0].sig) { $('.ui-carousel-sig').html(carousel_data[0].sig); }else{ $('.ui-carousel-sig').hide(); } if (carousel_data[0].subHeading) { $('.ui-carousel-subheading').html(carousel_data[0].subHeading); } $('.text-float').attr("class", "text-float"); if (carousel_data[0].color) { $('.text-float').addClass(carousel_data[0].color); } $('.text-float').addClass(carousel_data[0].textPos); if (carousel_data[0].Link) { $('.ui-carousel-link').addClass("ui-carousel-sig-button").html('<a class="ui-button ui-button-white ui-button-arrow-lr" href="' + carousel_data[0].Link + '" title="' + carousel_data[0].LinkText + '"><span class="ui-button-icon"></span>' + carousel_data[0].LinkText + '</a>'); } else { $('.ui-carousel-link').empty().removeClass("ui-carousel-sig-button"); } /* if there is more than one item then load in the scrollable carousel */ if ($(".js-carousel-large .items .item").length > 1) { $(".js-carousel-large").scrollable({ circular: true, onBeforeSeek: function () { $('.ui-carousel-sig, .ui-carousel-link, .text-float, .ui-carousel-subheading').hide(); }, onSeek: function (item, number) { $('.text-float').fadeTo(300, 1); ind = this.getIndex(); $('.text-float').attr("class", "text-float"); $('.text-float').addClass(carousel_data[ind].textPos); if (carousel_data[ind].color) { $('.text-float').addClass(carousel_data[ind].color); } $('.text-float h2').html(carousel_data[ind].title); if (carousel_data[ind].Link) { $('.ui-carousel-link').show().addClass("ui-carousel-sig-button").html('<a class="ui-button ui-button-white ui-button-arrow-lr" href="' + carousel_data[ind].Link + '" title="' + carousel_data[0].LinkText + '"><span class="ui-button-icon"></span>' + carousel_data[ind].LinkText + '</a>'); } else { $('.ui-carousel-link').removeClass("ui-carousel-sig-button").empty(); } if (carousel_data[ind].subHeading) { $('.ui-carousel-subheading').text(carousel_data[ind].subHeading).show(); } else { $('.ui-carousel-subheading').empty().hide(); } if (carousel_data[ind].sig) { $('.ui-carousel-sig').text(carousel_data[ind].sig).show(); } else { $('.ui-carousel-sig').hide(); } } }).autoscroll({ interval: 6000 }).navigator(); } }); <div class="item {{:printClass}}"> <div class="image"><img src="{{:img}}" alt="{{:alt}}"></div> </div> <!-- "previous page" action --> <!-- injected IF ONLY ONE ITEM THEN IT DOES NOT ROTATE OR SHOW NAV--> <!-- end .navigation --> <!-- end .carousel --> Tax Excellent service and legal advice from a specialist tax team delivering an amazing client experience for companies in the UK. Our team of skilled tax lawyers aim to guide you through a maze of complex rules to deliver clear strategic advice. We work closely with other practice groups in the firm to provide you with a seamless and comprehensive service. Our clients praise us for our clear commercial advice, that helps them to complete their transactions and achieve their objectives. We provide the full range of tax services to our clients, including:- UK and multi-jurisdiction transactional advisory, including: mergers and acquisitions reorganisations, restructuring and demergers private equity joint ventures Employment taxation, including tax efficient incentivisation plans; EIS and VCT schemes and structuring; and Real estate tax, including the tax structuring of complex development projects. <!-- .ui-article --> Key contacts View all Tax contacts Kate Featherstone Partner T 03700 86 4224 Email me <!-- .ui-contacts-details --> Tom Wilde Partner M 07802 295 192 T 03700 86 8713 Email me <!-- .ui-contacts-details --> Tax Excellent service and legal advice from a specialist tax team delivering an amazing client experience for companies in the UK. Our team of skilled tax lawyers aim to guide you through a maze of complex rules to deliver clear strategic advice. We work closely with other practice groups in the firm to provide you with a seamless and comprehensive service. Our clients praise us for our clear commercial advice, that helps them to complete their transactions and achieve their objectives. We provide the full range of tax services to our clients, including:- UK and multi-jurisdiction transactional advisory, including: mergers and acquisitions reorganisations, restructuring and demergers private equity joint ventures Employment taxation, including tax efficient incentivisation plans; EIS and VCT schemes and structuring; and Real estate tax, including the tax structuring of complex development projects.Thu, 16 Feb 2017 00:00:00 Z<![CDATA[Kate Featherstone Tom Wilde ]]><![CDATA[ /* use [h]text[/h] to hightlight word [nl] for new line */ var carousel_data = [ // img: "PATH TO BACKGROUND IMG", title: "Title [h]hightline[/h] [nl]new line [h]highlight[/h]", sig: "button right sig", LinkText: 'This is a link (OPTIONAL)', Link: '#test (OPTIONAL)', textPos: "right/left (OPTIONAL)", color:"white-text (OPTIONAL)" { img: "/images/EISA-Awards-TaxPage.jpg", title: "'Highly Commended' at EISA Awards", alt: "", LinkText: 'Read more', Link: '/news/press-releases/shoosmiths-highly-commended-EISA-awards-12464.aspx', textPos: "left", color:"white-text" } ]; $(function () { $.each(carousel_data, function (i, item) { if (i > 0) { item.printClass = "no-print"; } item.title = item.title.replace(/\[h\]/g, '<span>'); item.title = item.title.replace(/\[\/h\]/g, '</span>'); item.title = item.title.replace(/\[nl\]/g, '<br />'); }); $(".js-carousel-large .items").html($("#carousel-simple-template").render(carousel_data)); $('.text-float h2').html(carousel_data[0].title); if (carousel_data[0].sig) { $('.ui-carousel-sig').html(carousel_data[0].sig); }else{ $('.ui-carousel-sig').hide(); } if (carousel_data[0].subHeading) { $('.ui-carousel-subheading').html(carousel_data[0].subHeading); } $('.text-float').attr("class", "text-float"); if (carousel_data[0].color) { $('.text-float').addClass(carousel_data[0].color); } $('.text-float').addClass(carousel_data[0].textPos); if (carousel_data[0].Link) { $('.ui-carousel-link').addClass("ui-carousel-sig-button").html('<a class="ui-button ui-button-white ui-button-arrow-lr" href="' + carousel_data[0].Link + '" title="' + carousel_data[0].LinkText + '"><span class="ui-button-icon"></span>' + carousel_data[0].LinkText + '</a>'); } else { $('.ui-carousel-link').empty().removeClass("ui-carousel-sig-button"); } /* if there is more than one item then load in the scrollable carousel */ if ($(".js-carousel-large .items .item").length > 1) { $(".js-carousel-large").scrollable({ circular: true, onBeforeSeek: function () { $('.ui-carousel-sig, .ui-carousel-link, .text-float, .ui-carousel-subheading').hide(); }, onSeek: function (item, number) { $('.text-float').fadeTo(300, 1); ind = this.getIndex(); $('.text-float').attr("class", "text-float"); $('.text-float').addClass(carousel_data[ind].textPos); if (carousel_data[ind].color) { $('.text-float').addClass(carousel_data[ind].color); } $('.text-float h2').html(carousel_data[ind].title); if (carousel_data[ind].Link) { $('.ui-carousel-link').show().addClass("ui-carousel-sig-button").html('<a class="ui-button ui-button-white ui-button-arrow-lr" href="' + carousel_data[ind].Link + '" title="' + carousel_data[0].LinkText + '"><span class="ui-button-icon"></span>' + carousel_data[ind].LinkText + '</a>'); } else { $('.ui-carousel-link').removeClass("ui-carousel-sig-button").empty(); } if (carousel_data[ind].subHeading) { $('.ui-carousel-subheading').text(carousel_data[ind].subHeading).show(); } else { $('.ui-carousel-subheading').empty().hide(); } if (carousel_data[ind].sig) { $('.ui-carousel-sig').text(carousel_data[ind].sig).show(); } else { $('.ui-carousel-sig').hide(); } } }).autoscroll({ interval: 6000 }).navigator(); } }); <div class="item {{:printClass}}" > <div class="image"><img src="{{:img}}" alt="{{:alt}}"/></div> </div> <!-- "previous page" action --> <!-- injected IF ONLY ONE ITEM THEN IT DOES NOT ROTATE OR SHOW NAV--> <!-- end .navigation --> <!-- end .carousel --> Tax Excellent service and legal advice from a specialist tax team delivering an amazing client experience for companies in the UK. Our team of skilled tax lawyers aim to guide you through a maze of complex rules to deliver clear strategic advice. We work closely with other practice groups in the firm to provide you with a seamless and comprehensive service. Our clients praise us for our clear commercial advice, that helps them to complete their transactions and achieve their objectives. We provide the full range of tax services to our clients, including:- UK and multi-jurisdiction transactional advisory, including: mergers and acquisitions reorganisations, restructuring and demergers private equity joint ventures Employment taxation, including tax efficient incentivisation plans; EIS and VCT schemes and structuring; and Real estate tax, including the tax structuring of complex development projects. <!-- .ui-article --> Key contacts View all Tax contacts Kate Featherstone Partner T 03700 86 4224 Email me <!-- .ui-contacts-details --> Tom Wilde Partner M 07802 295 192 T 03700 86 8713 Email me <!-- .ui-contacts-details --> Tax Excellent service and legal advice from a specialist tax team delivering an amazing client experience for companies in the UK. Our team of skilled tax lawyers aim to guide you through a maze of complex rules to deliver clear strategic advice. We work closely with other practice groups in the firm to provide you with a seamless and comprehensive service. Our clients praise us for our clear commercial advice, that helps them to complete their transactions and achieve their objectives. We provide the full range of tax services to our clients, including:- UK and multi-jurisdiction transactional advisory, including: mergers and acquisitions reorganisations, restructuring and demergers private equity joint ventures Employment taxation, including tax efficient incentivisation plans; EIS and VCT schemes and structuring; and Real estate tax, including the tax structuring of complex development projects.]]>{A64885A3-B1FD-4DBF-8283-1BF96CE4F5C9}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-highly-commended-eisa-awards-12464.aspxShoosmiths announced as &#39;highly commended&#39; legal adviser in Enterprise Investment Scheme Association Awards National law firm Shoosmiths was 'highly commended' in the legal or regulatory adviser category of the Enterprise Investment Scheme Association (EISA) Awards. Presented at the House of Lords, the awards celebrate excellence in a number of related fields with firms, advisers, individuals and journalists being recognised for their outstanding performance in the context of EIS/SEIS schemes during 2016. Shoosmiths was 'highly commended' for its work in promoting the industry through speaking at key investor events and thought leadership and active involvement in technical aspects of EIS/SEIS advice. Shoosmiths provides both EIS/SEIS tax and corporate advice to all types of investors and investee companies including how to structure and implement EIS/SEIS-qualifying investments, reorganisations and exits from both a corporate and a tax perspective; obtaining advance assurances from HMRC in relation to proposed investments; negotiating investment documents; and submitting responses to consultation documents to HMRC and HM Treasury on proposed changes to EIS/SEIS legislation. Tom Wilde, tax partner and head of the VCT, EIS and SEIS practice at Shoosmiths, commented: 'It is fantastic to receive recognition from the leading industry awards for the market-leading EIS/SEIS advice that we provide for our clients here at Shoosmiths. 'Tax law is complex and constantly changing and through our membership of various professional bodies we are closely involved in anticipating, monitoring and shaping the changes. We are continuing to invest in expertise to ensure we provide our clients with the most suitable advice for their business and look forward to the numerous opportunities this ever evolving area makes available.' As well as providing market-leading EIS, SEIS and VCT advice, Shoosmiths' tax team advises a wide range of clients nationally on a variety of issues that include advising on private equity investments and trade acquisitions and disposals, structuring all types of real estate transactions (both residential and commercial) and the implementation of various employee incentive schemes, including a wide range of share options. Wed, 08 Feb 2017 00:00:00 Z<![CDATA[Tom Wilde ]]><![CDATA[ National law firm Shoosmiths was 'highly commended' in the legal or regulatory adviser category of the Enterprise Investment Scheme Association (EISA) Awards. Presented at the House of Lords, the awards celebrate excellence in a number of related fields with firms, advisers, individuals and journalists being recognised for their outstanding performance in the context of EIS/SEIS schemes during 2016. Shoosmiths was 'highly commended' for its work in promoting the industry through speaking at key investor events and thought leadership and active involvement in technical aspects of EIS/SEIS advice. Shoosmiths provides both EIS/SEIS tax and corporate advice to all types of investors and investee companies including how to structure and implement EIS/SEIS-qualifying investments, reorganisations and exits from both a corporate and a tax perspective; obtaining advance assurances from HMRC in relation to proposed investments; negotiating investment documents; and submitting responses to consultation documents to HMRC and HM Treasury on proposed changes to EIS/SEIS legislation. Tom Wilde, tax partner and head of the VCT, EIS and SEIS practice at Shoosmiths, commented: 'It is fantastic to receive recognition from the leading industry awards for the market-leading EIS/SEIS advice that we provide for our clients here at Shoosmiths. 'Tax law is complex and constantly changing and through our membership of various professional bodies we are closely involved in anticipating, monitoring and shaping the changes. We are continuing to invest in expertise to ensure we provide our clients with the most suitable advice for their business and look forward to the numerous opportunities this ever evolving area makes available.' As well as providing market-leading EIS, SEIS and VCT advice, Shoosmiths' tax team advises a wide range of clients nationally on a variety of issues that include advising on private equity investments and trade acquisitions and disposals, structuring all types of real estate transactions (both residential and commercial) and the implementation of various employee incentive schemes, including a wide range of share options. ]]>{9E1E4413-C176-4B7B-92E7-142FB5B0C264}https://www.shoosmiths.co.uk/news/press-releases/11454.aspxEU Referendum result: Shoosmiths experts comment Shoosmiths' experts in competition, employment, real estate, corporate and commercial comment on the EU referendum result. Competition Law Simon Barnes, head of EU and competition at Shoosmiths The UK's competition laws mirror that of the EU's, therefore the vote to leave should in principle have very little, if any, effect on the competition law assessment of commercial agreements. The leave vote could see changes in how competition law applies to certain types of commercial arrangement, such as distribution and licensing agreements, as the current rules come from the European Commission block exemption regulations and guidelines. These could be discarded now that we have opted out of the EU. Disparities between the UK and EU's competition laws may emerge in the long term when differences in levels of enforcement and court judgements become apparent. Should the EU guidance be repealed, both the lawfulness of commercial arrangements and the compliance to varying rules in different jurisdictions will be a concern for businesses. The EU Merger Regulation will now cease to apply with deals in future potentially having to be reviewed under both the Merger Regulation and the UK's domestic merger rules. Control of State aid can now be retained by the UK, possibly allowing the UK to benefit from public support by way of grants and favourable tax regimes. However, respecting the existing EU rules on this may prove crucial in securing access to the EU single market. Similarly the existing public procurement regime will most likely stay put to promote competitiveness in public tender processes and act as a tool in negotiating single market access. Employment Law Charles Rae, employment partner at Shoosmiths Now that the UK has voted to leave the EU, once Brexit is completed the Government could in theory decide to repeal or revise a significant proportion of the UK's employment laws, where these are laws that are required as part of the UK's membership of the EU. A number of employment laws fall into this category, such as many of the anti-discrimination rights, transfer of undertakings regulations, family leave entitlements, collective consultation obligations, duties to agency workers or working time regulations. However, any kind of wholesale change seems unlikely for a number of reasons. Many of the laws in question have become so ingrained within UK businesses that it seems unlikely the Government would take steps to significantly change or remove them, especially where they provide rights to employees that have become widely accepted and valued. Moreover, much of the UK's employment legislation pre-dates the EU imposed ones, and have instead been built upon by later EU requirements, so the foundations are already in place. For instance, the UK already had race and disability discrimination rules before the EU wide requirements were introduced. Many feel that more likely than repealing laws, the Government would take the opportunity to smooth off some of the less popular requirements set down by the EU, for example restrictions on changing terms and conditions following a TUPE transfer. We may also find that freedom of movement within the EU leaves uncertainty as to the status of EU nationals who already work in the UK (and vice versa). Many businesses rely on EU workers and will want to be satisfied that their right to remain in the UK (and to therefore provide their services) is not going to be adversely affected. Equally, it isn't clear what a Brexit will mean for EU nationals currently working in the UK. Many potential solutions have been mooted, such as a compromise that would see current EU migrants given a set period of time to remain in the UK during which they can apply for citizenship, in return for UK citizens currently abroad to remain where they are on the same basis. Real Estate Simon Boss, real estate partner at Shoosmiths Given that the commercial real estate deals flow has already been impacted by the uncertainty that abounded in the run up to the referendum, we may see some clients putting deals on hold in the wake of the leave result. Equally, we may see some pick up in transactions as some investors look to reduce their exposure to the UK market. For some funds and investors this may present an opportunity to acquire at an attractive price. Since its creation, no Member State has ever left the European Union so we have no clear precedent in regards to what happens next and this is as much the case for the real estate sector as it is for the wider commercial arena. Withdrawal from the EU could have major implications for the construction industry, which is already tackling a labour shortage. Tightened immigration control could now exacerbate this issue, given that a large percentage of EU immigrants work in the construction sector. What many will be waiting most anxiously to determine though is how far foreign investment into British real estate will be impacted by our withdrawal from the EU. Will the position of Britain as a primary choice for commercial real estate investment in Europe suffer? Until some certainty returns to the market, this could well reduce the UK's reputation as a safe haven for real estate investment. Corporate - Private Equity Kieran Toal, corporate partner at Shoosmiths We're now in uncharted waters - no member state has left the EU since its inception and how the economy and UK businesses will fare is hard to predict. However in terms of the Private Equity market, we are dealing with the relative unknown, but investors still need to invest. Admittedly there may be a slow start while buyers take stock but, once the wheels begin to turn, there is a plethora of cash-rich private equity houses with capital to invest and UK businesses with rich growth potential aren't going to lose their appeal overnight. There may well be a shift in focus, with businesses which are particularly reliant on European markets becoming less attractive propositions. But for the most part, likelihood is that the inertia caused by uncertainty over the vote will slowly lift. Commercial - Creative industries Laura Harper, partner in the national Intellectual Property &amp; Creative Industries group and head of the IP &amp; Creative Industries at Shoosmiths I think there is going to be concern and disappointment in the creative industries at this outcome. There are many questions that will have to be answered around funding, free movement of people and collaboration across film, television and the performing arts. Certainly it's no exaggeration to say regulation around Trade Mark protection is going to need redrafting creating uncertainty for companies here and abroad who own EU Trade Marks. The 'out' vote means there is going to have to be a transitional period where companies who have an EU Trade Mark will potentially lose protection in the UK and they will need to audit their TM portfolios to identify the areas which will require attention to ensure they apply for the necessary national coverage. As legal advisers we will provide advice on the basis that UK protection under EU trade marks will be eventually lost until we receive clarity on the transitional provisions to ensure that our clients' interests are fully protected. The patent system has taken decades to negotiate - the Unified Patent and Unified Patent Court was due to be implemented in 2017. With this vote this will probably be delayed and add an extra layer of process to the new Unified Patent and Court procedure.Fri, 24 Jun 2016 00:00:00 +0100<![CDATA[ Shoosmiths' experts in competition, employment, real estate, corporate and commercial comment on the EU referendum result. Competition Law Simon Barnes, head of EU and competition at Shoosmiths The UK's competition laws mirror that of the EU's, therefore the vote to leave should in principle have very little, if any, effect on the competition law assessment of commercial agreements. The leave vote could see changes in how competition law applies to certain types of commercial arrangement, such as distribution and licensing agreements, as the current rules come from the European Commission block exemption regulations and guidelines. These could be discarded now that we have opted out of the EU. Disparities between the UK and EU's competition laws may emerge in the long term when differences in levels of enforcement and court judgements become apparent. Should the EU guidance be repealed, both the lawfulness of commercial arrangements and the compliance to varying rules in different jurisdictions will be a concern for businesses. The EU Merger Regulation will now cease to apply with deals in future potentially having to be reviewed under both the Merger Regulation and the UK's domestic merger rules. Control of State aid can now be retained by the UK, possibly allowing the UK to benefit from public support by way of grants and favourable tax regimes. However, respecting the existing EU rules on this may prove crucial in securing access to the EU single market. Similarly the existing public procurement regime will most likely stay put to promote competitiveness in public tender processes and act as a tool in negotiating single market access. Employment Law Charles Rae, employment partner at Shoosmiths Now that the UK has voted to leave the EU, once Brexit is completed the Government could in theory decide to repeal or revise a significant proportion of the UK's employment laws, where these are laws that are required as part of the UK's membership of the EU. A number of employment laws fall into this category, such as many of the anti-discrimination rights, transfer of undertakings regulations, family leave entitlements, collective consultation obligations, duties to agency workers or working time regulations. However, any kind of wholesale change seems unlikely for a number of reasons. Many of the laws in question have become so ingrained within UK businesses that it seems unlikely the Government would take steps to significantly change or remove them, especially where they provide rights to employees that have become widely accepted and valued. Moreover, much of the UK's employment legislation pre-dates the EU imposed ones, and have instead been built upon by later EU requirements, so the foundations are already in place. For instance, the UK already had race and disability discrimination rules before the EU wide requirements were introduced. Many feel that more likely than repealing laws, the Government would take the opportunity to smooth off some of the less popular requirements set down by the EU, for example restrictions on changing terms and conditions following a TUPE transfer. We may also find that freedom of movement within the EU leaves uncertainty as to the status of EU nationals who already work in the UK (and vice versa). Many businesses rely on EU workers and will want to be satisfied that their right to remain in the UK (and to therefore provide their services) is not going to be adversely affected. Equally, it isn't clear what a Brexit will mean for EU nationals currently working in the UK. Many potential solutions have been mooted, such as a compromise that would see current EU migrants given a set period of time to remain in the UK during which they can apply for citizenship, in return for UK citizens currently abroad to remain where they are on the same basis. Real Estate Simon Boss, real estate partner at Shoosmiths Given that the commercial real estate deals flow has already been impacted by the uncertainty that abounded in the run up to the referendum, we may see some clients putting deals on hold in the wake of the leave result. Equally, we may see some pick up in transactions as some investors look to reduce their exposure to the UK market. For some funds and investors this may present an opportunity to acquire at an attractive price. Since its creation, no Member State has ever left the European Union so we have no clear precedent in regards to what happens next and this is as much the case for the real estate sector as it is for the wider commercial arena. Withdrawal from the EU could have major implications for the construction industry, which is already tackling a labour shortage. Tightened immigration control could now exacerbate this issue, given that a large percentage of EU immigrants work in the construction sector. What many will be waiting most anxiously to determine though is how far foreign investment into British real estate will be impacted by our withdrawal from the EU. Will the position of Britain as a primary choice for commercial real estate investment in Europe suffer? Until some certainty returns to the market, this could well reduce the UK's reputation as a safe haven for real estate investment. Corporate - Private Equity Kieran Toal, corporate partner at Shoosmiths We're now in uncharted waters - no member state has left the EU since its inception and how the economy and UK businesses will fare is hard to predict. However in terms of the Private Equity market, we are dealing with the relative unknown, but investors still need to invest. Admittedly there may be a slow start while buyers take stock but, once the wheels begin to turn, there is a plethora of cash-rich private equity houses with capital to invest and UK businesses with rich growth potential aren't going to lose their appeal overnight. There may well be a shift in focus, with businesses which are particularly reliant on European markets becoming less attractive propositions. But for the most part, likelihood is that the inertia caused by uncertainty over the vote will slowly lift. Commercial - Creative industries Laura Harper, partner in the national Intellectual Property &amp; Creative Industries group and head of the IP &amp; Creative Industries at Shoosmiths I think there is going to be concern and disappointment in the creative industries at this outcome. There are many questions that will have to be answered around funding, free movement of people and collaboration across film, television and the performing arts. Certainly it's no exaggeration to say regulation around Trade Mark protection is going to need redrafting creating uncertainty for companies here and abroad who own EU Trade Marks. The 'out' vote means there is going to have to be a transitional period where companies who have an EU Trade Mark will potentially lose protection in the UK and they will need to audit their TM portfolios to identify the areas which will require attention to ensure they apply for the necessary national coverage. As legal advisers we will provide advice on the basis that UK protection under EU trade marks will be eventually lost until we receive clarity on the transitional provisions to ensure that our clients' interests are fully protected. The patent system has taken decades to negotiate - the Unified Patent and Unified Patent Court was due to be implemented in 2017. With this vote this will probably be delayed and add an extra layer of process to the new Unified Patent and Court procedure.]]>{C248344E-33DF-4658-BBBB-D4BDE6C3725C}https://www.shoosmiths.co.uk/client-resources/legal-updates/budget-2016-what-it-means-for-your-business-11069.aspxBudget 2016: what it means for your business When a Conservative majority Government was elected last year, most businesses and business owners breathed a sigh of relief thinking that we were in for a period of stability as far as the UK's tax rules were concerned. However, since then both in the Autumn Statement 2015 and today's Budget, that has been far from the reality with the Government using their new-found freedom to introduce a raft of new business tax measures. The headlines from today's Budget from a business tax perspective will no doubt be grabbed by the good-news announcements around a further proposed reduction in corporation tax (to 17% in 2020) and a substantial cut in the rate of capital gains tax (to 20% for higher rate taxpayers and 10% for basic rate taxpayers from April 2016). However, there are other changes which are likely to be equally, if not more, significant. On the plus side, the fact that entrepreneurs' relief (whereby capital gains tax is charged at 10%) has been extended, rather than being restricted as some had feared, to long term investors in unlisted companies is welcome, although one can't help wondering if this is a pre-cursor to restricting relief under the enterprise investment scheme (EIS) in due course given how heavily the extension seems to borrow from the EIS legislation. In the camp of the less welcome announcement, the Government's flagship scheme of employee shareholder status (ESS) brought in only a few years ago has been heavily restricted (and in a lot of scenarios will mean in reality that it is abolished completely) with the imposition of a lifetime cap of £100,000 per individual for ESS gains. In addition, the announcement that employer's national insurance will apply to any termination payment made to ex-employees of more than £30,000 from April 2018 will add 13.8% to the cost to businesses of such payments. Also, any company or business dealing with real estate and subject to SDLT will be groaning again following yet more changes (and for most, other than the smallest investors, that means increases) in the rates and application of SDLT, for both commercial property with changes similar to those introduced for residential property last year, and the tightening of the recently announced new residential SDLT rules, in particular the confirmation that there will be no exclusion for large property investors as had been anticipated. So as far as business tax and business owners are concerned, the Budget is very much the usual mixture of headline-grabbing good news proposals being given with one hand and less welcome, less advertised changes taking away with the other. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Wed, 16 Mar 2016 00:00:00 Z<![CDATA[Tom Wilde Kate Featherstone ]]><![CDATA[ When a Conservative majority Government was elected last year, most businesses and business owners breathed a sigh of relief thinking that we were in for a period of stability as far as the UK's tax rules were concerned. However, since then both in the Autumn Statement 2015 and today's Budget, that has been far from the reality with the Government using their new-found freedom to introduce a raft of new business tax measures. The headlines from today's Budget from a business tax perspective will no doubt be grabbed by the good-news announcements around a further proposed reduction in corporation tax (to 17% in 2020) and a substantial cut in the rate of capital gains tax (to 20% for higher rate taxpayers and 10% for basic rate taxpayers from April 2016). However, there are other changes which are likely to be equally, if not more, significant. On the plus side, the fact that entrepreneurs' relief (whereby capital gains tax is charged at 10%) has been extended, rather than being restricted as some had feared, to long term investors in unlisted companies is welcome, although one can't help wondering if this is a pre-cursor to restricting relief under the enterprise investment scheme (EIS) in due course given how heavily the extension seems to borrow from the EIS legislation. In the camp of the less welcome announcement, the Government's flagship scheme of employee shareholder status (ESS) brought in only a few years ago has been heavily restricted (and in a lot of scenarios will mean in reality that it is abolished completely) with the imposition of a lifetime cap of £100,000 per individual for ESS gains. In addition, the announcement that employer's national insurance will apply to any termination payment made to ex-employees of more than £30,000 from April 2018 will add 13.8% to the cost to businesses of such payments. Also, any company or business dealing with real estate and subject to SDLT will be groaning again following yet more changes (and for most, other than the smallest investors, that means increases) in the rates and application of SDLT, for both commercial property with changes similar to those introduced for residential property last year, and the tightening of the recently announced new residential SDLT rules, in particular the confirmation that there will be no exclusion for large property investors as had been anticipated. So as far as business tax and business owners are concerned, the Budget is very much the usual mixture of headline-grabbing good news proposals being given with one hand and less welcome, less advertised changes taking away with the other. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{B9B4D05B-B643-4893-9CDD-70D0EA9826EB}https://www.shoosmiths.co.uk/client-resources/legal-updates/the-buy-to-let-tax-raid-10816.aspxThe buy-to-let tax raid Not content with increasing the rate of SDLT by 3% on buy-to-let properties, the chancellor has announced radical changes to interest deductibility, which will make owning buy to let properties less attractive than ever before. The current position Buy to let landlords can claim tax relief for the whole amount of their mortgage interest at their personal rate of tax. For example, let's say Mr J (who is a higher rate tax payer) owns one buy to let property. He receives £20,000 rental income per annum. His buy to let property is mortgaged and his mortgage interest amounts to £13,000 annually. In other words, he makes a taxable profit of £7,000, on which he pays tax (at 40%) of £2,800. In other words, the whole amount of his mortgage interest is set off against his rental income before he has to pay any tax. Out of the £7,000 of profit HMRC gets £2,800 and Mr J gets £4,200. What is changing? By April 2020, tax at 40% will be due on the whole amount of Mr J's rental income, less a tax credit equal to the basic rate of tax. Mr J's tax (at 40%) is calculated by reference to the whole amount of the rental income of £20,000 (i.e. £8,000). From this he will be able to deduct 20% of his £13,000 mortgage interest (i.e. £2,600) thereby reducing his tax from £8,000 to £5,400. Out of the £7,000 of profit HMRC gets £5,400 and Mr J gets £1,600. If the interest rate rises by a fraction and Mr J's mortgage interest increases to £15,000, Mr J's profit reduces from £7,000 to £5,000, but his tax reduces by just £400. Out of the £5,000 of profit HMRC gets £5,000 and Mr J gets £0. When is it changing? The changes are being phased in between April 2017 and April 2020 - the percentage of interest eligible for deduction will decrease on a sliding scale throughout that period. What can be done? The options are limited: Remortgage: switching to a mortgage with a low rate of interest is now more important than ever Tax planning: if the landlord is a higher or additional rate tax payer and has a spouse or civil partner who doesn't work, transferring some of the rental income to the spouse to utilise his or her tax free personal allowance is beneficial, although this is only likely to assist in very small scale investments and may already have been done Portfolio restructuring: the changes do not have any impact on landlords who do not pay any mortgage interest. These changes are so drastic that we can expect to see some landlord's selling part of their portfolio in order to release capital to pay off the mortgages attached to the retained portfolio Incorporate a company: corporation tax will reduce to 18% in 2020 and companies receive a full deduction for mortgage interest. However, income tax at dividend rates has to be paid on any profit extraction by the landlord and transferring existing properties into a company may trigger capital gains tax payable by reference to the current market value together with SDLT (probably with the new surcharge attached), so the tax expense attached to the incorporation is likely to be enough to render this unviable. These reforms were announced in such a way that very few buy to let investors are likely to be aware of the impact it will have on them. If you wish to discuss this in more detail please feel free to contact a member of our tax team. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 11 Jan 2016 00:00:00 Z<![CDATA[Kate Featherstone Tom Wilde ]]><![CDATA[ Not content with increasing the rate of SDLT by 3% on buy-to-let properties, the chancellor has announced radical changes to interest deductibility, which will make owning buy to let properties less attractive than ever before. The current position Buy to let landlords can claim tax relief for the whole amount of their mortgage interest at their personal rate of tax. For example, let's say Mr J (who is a higher rate tax payer) owns one buy to let property. He receives £20,000 rental income per annum. His buy to let property is mortgaged and his mortgage interest amounts to £13,000 annually. In other words, he makes a taxable profit of £7,000, on which he pays tax (at 40%) of £2,800. In other words, the whole amount of his mortgage interest is set off against his rental income before he has to pay any tax. Out of the £7,000 of profit HMRC gets £2,800 and Mr J gets £4,200. What is changing? By April 2020, tax at 40% will be due on the whole amount of Mr J's rental income, less a tax credit equal to the basic rate of tax. Mr J's tax (at 40%) is calculated by reference to the whole amount of the rental income of £20,000 (i.e. £8,000). From this he will be able to deduct 20% of his £13,000 mortgage interest (i.e. £2,600) thereby reducing his tax from £8,000 to £5,400. Out of the £7,000 of profit HMRC gets £5,400 and Mr J gets £1,600. If the interest rate rises by a fraction and Mr J's mortgage interest increases to £15,000, Mr J's profit reduces from £7,000 to £5,000, but his tax reduces by just £400. Out of the £5,000 of profit HMRC gets £5,000 and Mr J gets £0. When is it changing? The changes are being phased in between April 2017 and April 2020 - the percentage of interest eligible for deduction will decrease on a sliding scale throughout that period. What can be done? The options are limited: Remortgage: switching to a mortgage with a low rate of interest is now more important than ever Tax planning: if the landlord is a higher or additional rate tax payer and has a spouse or civil partner who doesn't work, transferring some of the rental income to the spouse to utilise his or her tax free personal allowance is beneficial, although this is only likely to assist in very small scale investments and may already have been done Portfolio restructuring: the changes do not have any impact on landlords who do not pay any mortgage interest. These changes are so drastic that we can expect to see some landlord's selling part of their portfolio in order to release capital to pay off the mortgages attached to the retained portfolio Incorporate a company: corporation tax will reduce to 18% in 2020 and companies receive a full deduction for mortgage interest. However, income tax at dividend rates has to be paid on any profit extraction by the landlord and transferring existing properties into a company may trigger capital gains tax payable by reference to the current market value together with SDLT (probably with the new surcharge attached), so the tax expense attached to the incorporation is likely to be enough to render this unviable. These reforms were announced in such a way that very few buy to let investors are likely to be aware of the impact it will have on them. If you wish to discuss this in more detail please feel free to contact a member of our tax team. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{5F3DE0F4-F74D-4CD6-86A0-933329084C43}https://www.shoosmiths.co.uk/client-resources/legal-updates/tax-update-eis-and-vct-10697.aspxTax update: EIS and VCT The Finance (No.2) Act 2015 has now received Royal Assent. Within the Act are arguably the biggest raft of changes to the enterprise investment scheme ('EIS') and venture capital trust ('VCT') legislation since the schemes were introduced. A high-level overview of the key changes is as follows: Investors who already hold shares in a company and are looking to claim EIS relief on a further share subscription will now only be able to do so if, broadly, the shares they already hold are EIS shares or subscriber shares. A new lifetime limit for a company or group of £12m of EIS, SEIS, VCT, Social Investment Tax Relief and certain types of State Aid investment has been introduced. This limit rises to £20m for companies which fit within a new definition of knowledge-intensive companies. This is an extremely complex test which involves looking at all companies in the group and also money raised by persons who have previously operated trades which have been acquired by the investee company or group. Subject to certain exceptions, a new age requirement that a company's first EIS or VCT investment must be made within 7 years (or 10 years for knowledge-intensive companies) from the company's first commercial sale has been introduced. This is another extremely complex test both in determining when the first commercial sale occurred (which involves looking at all group companies and any acquired trades) and also whether any of the exceptions to the test apply. EIS monies have not been able to be used to acquire share for a few years, but this prohibition has been extended both to all VCT money (thereby preventing VCT money from being used to undertake MBOs) and to using VCT or EIS funds for the acquisition of a trade and/or goodwill/intangible assets employed for the purposes of a trade. What HMRC views as a "trade" versus the acquisition or one or more assets is complex and will be key under the new regime. EIS or VCT money must be invested not only for the purposes of a qualifying trade but now also to promote business growth and development. This is likely to mean that detailed business plans have to be submitted to HMRC with any application. The changes have fundamentally altered the way that VCTs in particular operate and the market is still trying to work out how deals will be structured in the future (it is likely that we will see far more transactions where VCTs and non-VCTs invest alongside each other). The impact on the industry has been increased by the fact that the key changes, in particular the ones prohibiting the use of VCT money to carry out MBOs, were not included as part of a consultation published earlier in the year. These changes coupled with HMRC tightening their practice in certain areas over the past 12 months, e.g. in relation to the minimum subscription a shareholder has to make to obtain EIS relief; widening their interpretation of what constitutes a disposal for EIS purposes to include most share conversions and reorganisations; and restricting the rights which can be attached to such shares, have made an already complex area of legislation even more difficult to operate in both for clients and advisers. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Thu, 26 Nov 2015 00:00:00 Z<![CDATA[Tom Wilde ]]><![CDATA[ The Finance (No.2) Act 2015 has now received Royal Assent. Within the Act are arguably the biggest raft of changes to the enterprise investment scheme ('EIS') and venture capital trust ('VCT') legislation since the schemes were introduced. A high-level overview of the key changes is as follows: Investors who already hold shares in a company and are looking to claim EIS relief on a further share subscription will now only be able to do so if, broadly, the shares they already hold are EIS shares or subscriber shares. A new lifetime limit for a company or group of £12m of EIS, SEIS, VCT, Social Investment Tax Relief and certain types of State Aid investment has been introduced. This limit rises to £20m for companies which fit within a new definition of knowledge-intensive companies. This is an extremely complex test which involves looking at all companies in the group and also money raised by persons who have previously operated trades which have been acquired by the investee company or group. Subject to certain exceptions, a new age requirement that a company's first EIS or VCT investment must be made within 7 years (or 10 years for knowledge-intensive companies) from the company's first commercial sale has been introduced. This is another extremely complex test both in determining when the first commercial sale occurred (which involves looking at all group companies and any acquired trades) and also whether any of the exceptions to the test apply. EIS monies have not been able to be used to acquire share for a few years, but this prohibition has been extended both to all VCT money (thereby preventing VCT money from being used to undertake MBOs) and to using VCT or EIS funds for the acquisition of a trade and/or goodwill/intangible assets employed for the purposes of a trade. What HMRC views as a "trade" versus the acquisition or one or more assets is complex and will be key under the new regime. EIS or VCT money must be invested not only for the purposes of a qualifying trade but now also to promote business growth and development. This is likely to mean that detailed business plans have to be submitted to HMRC with any application. The changes have fundamentally altered the way that VCTs in particular operate and the market is still trying to work out how deals will be structured in the future (it is likely that we will see far more transactions where VCTs and non-VCTs invest alongside each other). The impact on the industry has been increased by the fact that the key changes, in particular the ones prohibiting the use of VCT money to carry out MBOs, were not included as part of a consultation published earlier in the year. These changes coupled with HMRC tightening their practice in certain areas over the past 12 months, e.g. in relation to the minimum subscription a shareholder has to make to obtain EIS relief; widening their interpretation of what constitutes a disposal for EIS purposes to include most share conversions and reorganisations; and restricting the rights which can be attached to such shares, have made an already complex area of legislation even more difficult to operate in both for clients and advisers. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{7DD22629-3D54-4C62-8FDA-AFCFF1AF7EF7}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-sponsors-thames-valley-accountancy-dinner-10334.aspxShoosmiths sponsors Thames Valley accountancy dinner National law firm Shoosmiths is pleased to announce its sponsorship of the Thames Valley Society of Chartered Accountants annual dinner and prize giving. The event, which is well attended by chartered accountants, bankers and lawyers from the region, takes place on the 25 September at the Hilton Hotel in Reading. Ian Keable, winner of the prestigious magic Circle 2008 Comedy Awards will compere the event, which is hosted by the Thames Valley branch of the Society of Chartered Accountants. The Society is part of the Institute of Chartered Accountants in England and Wales (ICAEW) that promotes, develops and supports chartered accountants by providing qualifications, professional development opportunities and encouraging knowledge sharing. Shoosmiths tax partner, Tom Wilde, said: 'We are pleased to be able to sponsor the event which recognises the success of local accountants with whom we work very closely. The society represents the interests of not only chartered accountants in the Thames Valley Region, but also the wider business community. The success of that community is down to the hard work of its members and networking events like this are important in encouraging information sharing and generating business.' Shoosmiths specialist tax team are skilled at looking for commercial solutions, whether dealing with general tax planning, tax efficient employee and remuneration packages, investing and exit tax structuring, or negotiating with HMRC. For more information visit www.shoosmiths.co.uk Wed, 02 Sep 2015 00:00:00 +0100<![CDATA[Tom Wilde ]]><![CDATA[ National law firm Shoosmiths is pleased to announce its sponsorship of the Thames Valley Society of Chartered Accountants annual dinner and prize giving. The event, which is well attended by chartered accountants, bankers and lawyers from the region, takes place on the 25 September at the Hilton Hotel in Reading. Ian Keable, winner of the prestigious magic Circle 2008 Comedy Awards will compere the event, which is hosted by the Thames Valley branch of the Society of Chartered Accountants. The Society is part of the Institute of Chartered Accountants in England and Wales (ICAEW) that promotes, develops and supports chartered accountants by providing qualifications, professional development opportunities and encouraging knowledge sharing. Shoosmiths tax partner, Tom Wilde, said: 'We are pleased to be able to sponsor the event which recognises the success of local accountants with whom we work very closely. The society represents the interests of not only chartered accountants in the Thames Valley Region, but also the wider business community. The success of that community is down to the hard work of its members and networking events like this are important in encouraging information sharing and generating business.' Shoosmiths specialist tax team are skilled at looking for commercial solutions, whether dealing with general tax planning, tax efficient employee and remuneration packages, investing and exit tax structuring, or negotiating with HMRC. For more information visit www.shoosmiths.co.uk ]]>{5DE43CA6-6437-4343-A12F-CE602D6F2574}https://www.shoosmiths.co.uk/client-resources/legal-updates/share-purchase-or-asset-purchase-10163.aspxAsset purchases - the Chancellor shows a lack of goodwill The Summer Budget on 8 July 2015 announced the removal of corporation tax relief for the costs of any goodwill and intangible assets on an asset purchase. Here we review the tax implications for buyers and highlight the key differences between share and asset purchases. When purchasing a business, there are two distinct acquisition structures: a share purchase, where the buyer acquires the shares of the company that operates the business; or an asset purchase, where the buyer acquires specific assets (such as goodwill, real estate and employees) from the company that operates the business. Differences between the structures On a share purchase, the business is acquired 'warts and all' as a going concern, meaning that all of its assets, obligations and liabilities will be transferred to the buyer, even those unidentified by due diligence. The shares are transferred to the buyer by stock transfer form executed by the seller(s). On an asset purchase, only those specific assets, obligations and liabilities identified by the buyer will be acquired. This allows a buyer to select the parts of the business that it wants and leave behind any risks or liabilities that it does not, although care must be taken to ensure that everything necessary to conduct the business is acquired. Each asset is transferred by a specific form of transfer (eg a real estate conveyance or, in the case of employees, by following the TUPE process). On larger transactions, this can require a significant amount of documentation. Tax implications From a very general tax perspective, a seller would have historically been likely to prefer a share purchase, whilst a buyer may well have favoured an asset purchase. There are many different tax factors to consider which may make one structure preferable over another (such as VAT, substantial shareholding exemption, entrepreneurs' relief, de-grouping charges, capital allowances, stamp duty, SDLT, tax losses, base cost etc). However, one of the main reasons a UK buyer may have preferred an asset purchase was the ability to obtain corporation tax relief for the costs of any goodwill and intangible assets purchased as part of an asset purchase, and the costs of which were then amortised in a company's accounts. However, the Summer Budget announced the removal of this relief for companies who write off the cost of purchased goodwill and certain intangible assets in their accounts. Although we will have to wait for the draft legislation to see the detail of this new measure, on the face of the announcement it removes one of the main tax advantages for a buyer on an asset purchase. It remains to be seen, but it may well be that this leads to a move away from asset purchases to share purchases given that the latter are likely to continue to be more tax efficient for the seller, and one of the buyer's main reasons for wanting an asset purchase has been taken away. Shoosmiths are experienced in advising on the corporate and tax aspects of both share and asset purchases. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 13 Jul 2015 00:00:00 +0100<![CDATA[Robert Pook Tom Wilde ]]><![CDATA[ The Summer Budget on 8 July 2015 announced the removal of corporation tax relief for the costs of any goodwill and intangible assets on an asset purchase. Here we review the tax implications for buyers and highlight the key differences between share and asset purchases. When purchasing a business, there are two distinct acquisition structures: a share purchase, where the buyer acquires the shares of the company that operates the business; or an asset purchase, where the buyer acquires specific assets (such as goodwill, real estate and employees) from the company that operates the business. Differences between the structures On a share purchase, the business is acquired 'warts and all' as a going concern, meaning that all of its assets, obligations and liabilities will be transferred to the buyer, even those unidentified by due diligence. The shares are transferred to the buyer by stock transfer form executed by the seller(s). On an asset purchase, only those specific assets, obligations and liabilities identified by the buyer will be acquired. This allows a buyer to select the parts of the business that it wants and leave behind any risks or liabilities that it does not, although care must be taken to ensure that everything necessary to conduct the business is acquired. Each asset is transferred by a specific form of transfer (eg a real estate conveyance or, in the case of employees, by following the TUPE process). On larger transactions, this can require a significant amount of documentation. Tax implications From a very general tax perspective, a seller would have historically been likely to prefer a share purchase, whilst a buyer may well have favoured an asset purchase. There are many different tax factors to consider which may make one structure preferable over another (such as VAT, substantial shareholding exemption, entrepreneurs' relief, de-grouping charges, capital allowances, stamp duty, SDLT, tax losses, base cost etc). However, one of the main reasons a UK buyer may have preferred an asset purchase was the ability to obtain corporation tax relief for the costs of any goodwill and intangible assets purchased as part of an asset purchase, and the costs of which were then amortised in a company's accounts. However, the Summer Budget announced the removal of this relief for companies who write off the cost of purchased goodwill and certain intangible assets in their accounts. Although we will have to wait for the draft legislation to see the detail of this new measure, on the face of the announcement it removes one of the main tax advantages for a buyer on an asset purchase. It remains to be seen, but it may well be that this leads to a move away from asset purchases to share purchases given that the latter are likely to continue to be more tax efficient for the seller, and one of the buyer's main reasons for wanting an asset purchase has been taken away. Shoosmiths are experienced in advising on the corporate and tax aspects of both share and asset purchases. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{EB6CF435-C7F0-4F1D-BE54-3475E4BEC3B7}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-advises-rex-features-33m-acquisition-shutterstock-9105.aspxShoosmiths advises Rex Features on 33m acquisition by Shutterstock National law firm Shoosmiths has advised the shareholders of Rex Features, the largest independently owned photographic press agency in Europe, on its 33m (USD) sale to Shutterstock, Inc., a leading global provider of commercial digital imagery and music. With Rex's editorial expertise and Shutterstock's technical prowess, the combined companies will bring a comprehensive offering to market across both editorial and commercial content. Founded in 1954 with offices in London and Los Angeles, Rex Features offers media companies and advertisers' images and videos, including a live feed of tightly edited celebrity, entertainment, sports and news images and videos, along with access to a multi-decade archive of iconic images. Shutterstock was founded in 2003 and is listed in New York. The company has focused on providing royalty free photos, videos and music to businesses, marketing agencies and media organizations. Shoosmiths corporate partner Sean Wright led the deal and was assisted by the corporate team, comprising of associate Lisa Sigalet and solicitors Emma Livesey and Jamie Chambers. Managing Director of Rex Features, Larry Lawson, said: 'Given Shutterstock's leadership in commercial imagery and Rex's history of meeting customers' editorial needs, we are excited about what Rex and Shutterstock can accomplish together. Shoosmiths has provided us with exemplary advice across the board, throughout this important deal.' Shoosmiths' Sean Wright, said: 'This really is a historic global deal, which will see the convergence of two commercial press agencies. This further serves to bolster our growing reputation for advising on high-profile national and international deals. Shoosmiths is ranked top in the South East and second nationally by deal volume in Experian's 2014 UK Deal Review and Advisor League Table, which is evidence of our growing market share.' 'We wish Shutterstock and Rex Features every success in this combination.' Shoosmiths works with businesses from start-up and first round finance through to mergers and acquisitions, MBO and MBI transactions and development funding and on exits, by way of sale, listing or private equity investment. Experian Corpfin is a UK business database containing verified business intelligence, industry news, deal rumours and company financial information in the UK. Fri, 30 Jan 2015 00:00:00 Z<![CDATA[Sean Wright Lisa Sigalet ]]><![CDATA[ National law firm Shoosmiths has advised the shareholders of Rex Features, the largest independently owned photographic press agency in Europe, on its 33m (USD) sale to Shutterstock, Inc., a leading global provider of commercial digital imagery and music. With Rex's editorial expertise and Shutterstock's technical prowess, the combined companies will bring a comprehensive offering to market across both editorial and commercial content. Founded in 1954 with offices in London and Los Angeles, Rex Features offers media companies and advertisers' images and videos, including a live feed of tightly edited celebrity, entertainment, sports and news images and videos, along with access to a multi-decade archive of iconic images. Shutterstock was founded in 2003 and is listed in New York. The company has focused on providing royalty free photos, videos and music to businesses, marketing agencies and media organizations. Shoosmiths corporate partner Sean Wright led the deal and was assisted by the corporate team, comprising of associate Lisa Sigalet and solicitors Emma Livesey and Jamie Chambers. Managing Director of Rex Features, Larry Lawson, said: 'Given Shutterstock's leadership in commercial imagery and Rex's history of meeting customers' editorial needs, we are excited about what Rex and Shutterstock can accomplish together. Shoosmiths has provided us with exemplary advice across the board, throughout this important deal.' Shoosmiths' Sean Wright, said: 'This really is a historic global deal, which will see the convergence of two commercial press agencies. This further serves to bolster our growing reputation for advising on high-profile national and international deals. Shoosmiths is ranked top in the South East and second nationally by deal volume in Experian's 2014 UK Deal Review and Advisor League Table, which is evidence of our growing market share.' 'We wish Shutterstock and Rex Features every success in this combination.' Shoosmiths works with businesses from start-up and first round finance through to mergers and acquisitions, MBO and MBI transactions and development funding and on exits, by way of sale, listing or private equity investment. Experian Corpfin is a UK business database containing verified business intelligence, industry news, deal rumours and company financial information in the UK. ]]>{D4121F9B-10A8-4A8F-A954-E801DA7E43FE}https://www.shoosmiths.co.uk/client-resources/legal-updates/digital-services-changes-supply-for-vat-purposes-8919.aspxDigital Services - Changes in the place of supply for VAT purposes From 1 January 2015, there will be a major change to the EU VAT rules which will affect businesses established in the EU and that supply digital services to end consumers located in other EU jurisdictions. Before Under the existing rules, the supplier charges VAT in its own EU jurisdiction and applies a single rate of VAT to all its supplies across the EU. After Businesses established in the EU that supply 'digital services' to end consumers in other EU jurisdictions will be required to charge and account for VAT in the consumer's jurisdiction. This represents a fundamental change in the place of supply rules, for VAT purposes, in relation to digital services, which is likely to significantly increase the administrative and compliance burden on digital businesses making supplies to other EU jurisdictions. It is worth noting that the changes will only be relevant to supplies made to end consumers (i.e. non-business customers). HM Revenue &amp; Customs take the view that only a valid VAT registration number will suffice as evidence to satisfy all EU revenue authorities that a customer is indeed in business and therefore outside the scope of the new rules. The meaning of 'digital service' HM Revenue &amp; Customs provide guidance on the meaning of "digital services" which covers: Broadcasting - the scheduled broadcasting of television or radio programmes, webcasts and live streaming (but not on-demand downloads) Telecommunications - the sending or receiving of signals, such as landline and mobile telephone and internet connections supplied by ISPs E-Services - automated electronic services (or those with very little human intervention) such as digital downloads and online market services. Steps businesses should take Any business that will be affected by the new VAT rules should take steps now to ensure that they are prepared. This may entail some or all of the following: updating sales platforms so that they can determine where a customer 'belongs' and whether or not they are a 'business' (rather than an end consumer) broadening the parameters of sales platforms to deal with different VAT rates and issue appropriate VAT invoices amending standard terms and conditions of supplies to account for the new rules taking any necessary steps to ensure that any additional data protection, consumer protection or document retention legislation is complied with One key point to consider is whether affected businesses should register with the new system, known as the 'Mini One-Stop Shop' (or MOSS), designed to alleviate the administrative burden on businesses to account for VAT on cross border supplies. The MOSS allows businesses to make a single VAT registration and submit a single VAT return in relation to digital services supplied to several EU jurisdictions. There are pros and cons to the MOSS system which should be considered as a whole before any registration is made. Businesses based out of the EU Businesses based outside of the EU that have an EU establishment (such as a European branch or office) may also come within the scope of the new rules. The rates of VAT differ across the EU. Under the existing rules, a non-EU established business may choose to set up a trading presence in a particular EU jurisdiction to benefit from the lower VAT rate applicable in that particular EU jurisdiction. However, the new rules may mean that differing VAT rates will no longer influence the decision of a non-EU established business as to where to establish its business in the EU. Other factors such as employment or transport costs may prove to be more influential. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Mon, 05 Jan 2015 00:00:00 Z<![CDATA[Tom Wilde ]]><![CDATA[ From 1 January 2015, there will be a major change to the EU VAT rules which will affect businesses established in the EU and that supply digital services to end consumers located in other EU jurisdictions. Before Under the existing rules, the supplier charges VAT in its own EU jurisdiction and applies a single rate of VAT to all its supplies across the EU. After Businesses established in the EU that supply 'digital services' to end consumers in other EU jurisdictions will be required to charge and account for VAT in the consumer's jurisdiction. This represents a fundamental change in the place of supply rules, for VAT purposes, in relation to digital services, which is likely to significantly increase the administrative and compliance burden on digital businesses making supplies to other EU jurisdictions. It is worth noting that the changes will only be relevant to supplies made to end consumers (i.e. non-business customers). HM Revenue &amp; Customs take the view that only a valid VAT registration number will suffice as evidence to satisfy all EU revenue authorities that a customer is indeed in business and therefore outside the scope of the new rules. The meaning of 'digital service' HM Revenue &amp; Customs provide guidance on the meaning of "digital services" which covers: Broadcasting - the scheduled broadcasting of television or radio programmes, webcasts and live streaming (but not on-demand downloads) Telecommunications - the sending or receiving of signals, such as landline and mobile telephone and internet connections supplied by ISPs E-Services - automated electronic services (or those with very little human intervention) such as digital downloads and online market services. Steps businesses should take Any business that will be affected by the new VAT rules should take steps now to ensure that they are prepared. This may entail some or all of the following: updating sales platforms so that they can determine where a customer 'belongs' and whether or not they are a 'business' (rather than an end consumer) broadening the parameters of sales platforms to deal with different VAT rates and issue appropriate VAT invoices amending standard terms and conditions of supplies to account for the new rules taking any necessary steps to ensure that any additional data protection, consumer protection or document retention legislation is complied with One key point to consider is whether affected businesses should register with the new system, known as the 'Mini One-Stop Shop' (or MOSS), designed to alleviate the administrative burden on businesses to account for VAT on cross border supplies. The MOSS allows businesses to make a single VAT registration and submit a single VAT return in relation to digital services supplied to several EU jurisdictions. There are pros and cons to the MOSS system which should be considered as a whole before any registration is made. Businesses based out of the EU Businesses based outside of the EU that have an EU establishment (such as a European branch or office) may also come within the scope of the new rules. The rates of VAT differ across the EU. Under the existing rules, a non-EU established business may choose to set up a trading presence in a particular EU jurisdiction to benefit from the lower VAT rate applicable in that particular EU jurisdiction. However, the new rules may mean that differing VAT rates will no longer influence the decision of a non-EU established business as to where to establish its business in the EU. Other factors such as employment or transport costs may prove to be more influential. DisclaimerThis document is for informational purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. ]]>{4D88B0FF-73B7-414F-95F2-966F409A8715}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-hires-two-birmingham-partners-8170.aspxShoosmiths hires two Birmingham partners National law firm Shoosmiths has announced the appointment of two partners who will be based at the firm's Birmingham office. Download hi-res image David Adams and Kate Featherstone Kate Featherstone joins as partner from Pinsent Masons where she was a senior associate in the tax team and will head up Shoosmiths' tax offering in Birmingham and will advise on all aspects of corporate and business tax. David Adams, who was previously lead partner for the Midlands banking team at Squire Sanders, will focus on all aspects of banking and restructuring, working closely with some of the UK's major banks and financial institutions at Shoosmiths. Commenting on the new partner appointments, Shoosmiths' head of Birmingham office, Jason Jackson, said: 'David and Kate's moves to join Shoosmiths mark another forward step for our tax and banking teams here in Birmingham. Both partners have strong reputations for technical excellence and expertise and are a great cultural fit. We wish them every success here.' Kate said: 'Now is a good time to be joining Shoosmiths and heading up the tax team here in Birmingham. The market is gaining momentum and the team has exceptional expertise to deal with all aspects of corporate matters. I'm looking forward to being part of the excellent team already established at Shoosmiths.' David said: 'Shoosmiths has a very good reputation for banking and finance with market-leading clients. The firm, like me, has strong values at its core, particularly surrounding the client experience and I am excited to be a part of this.' Kate has significant experience of private equity transactions, mergers and acquisitions, restructurings and reorganisations. Kate has been described by the Legal 500 directory as 'technically excellent' and is noted for advice given to private equity houses. Kate has advised banks, FTSE 100 national brands and foreign companies, as well as major local businesses. David has advised some of the world's largest banks and specialises in real estate finance, acquisition and leveraged finance (both sponsor and non-sponsor), pensions-related finance, restructuring, refinancing and asset-based lending. Shoosmiths' tax team works closely with other practice groups in the firm to provide clients with a comprehensive and seamless service. The firm is also a member of the World Services Group international alliance of law firms. Shoosmiths' national banking and finance team advises clients on a range of financing transactions across a wide variety of sectors, often with a multi-jurisdictional element. The team acts for borrowers, lenders and investors with expertise extending to corporate lending, acquisition finance, real estate finance, rail, aviation and marine finance, invoice discounting and other asset-based lending and refinancings. Wed, 13 Aug 2014 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ National law firm Shoosmiths has announced the appointment of two partners who will be based at the firm's Birmingham office. Download hi-res image David Adams and Kate Featherstone Kate Featherstone joins as partner from Pinsent Masons where she was a senior associate in the tax team and will head up Shoosmiths' tax offering in Birmingham and will advise on all aspects of corporate and business tax. David Adams, who was previously lead partner for the Midlands banking team at Squire Sanders, will focus on all aspects of banking and restructuring, working closely with some of the UK's major banks and financial institutions at Shoosmiths. Commenting on the new partner appointments, Shoosmiths' head of Birmingham office, Jason Jackson, said: 'David and Kate's moves to join Shoosmiths mark another forward step for our tax and banking teams here in Birmingham. Both partners have strong reputations for technical excellence and expertise and are a great cultural fit. We wish them every success here.' Kate said: 'Now is a good time to be joining Shoosmiths and heading up the tax team here in Birmingham. The market is gaining momentum and the team has exceptional expertise to deal with all aspects of corporate matters. I'm looking forward to being part of the excellent team already established at Shoosmiths.' David said: 'Shoosmiths has a very good reputation for banking and finance with market-leading clients. The firm, like me, has strong values at its core, particularly surrounding the client experience and I am excited to be a part of this.' Kate has significant experience of private equity transactions, mergers and acquisitions, restructurings and reorganisations. Kate has been described by the Legal 500 directory as 'technically excellent' and is noted for advice given to private equity houses. Kate has advised banks, FTSE 100 national brands and foreign companies, as well as major local businesses. David has advised some of the world's largest banks and specialises in real estate finance, acquisition and leveraged finance (both sponsor and non-sponsor), pensions-related finance, restructuring, refinancing and asset-based lending. Shoosmiths' tax team works closely with other practice groups in the firm to provide clients with a comprehensive and seamless service. The firm is also a member of the World Services Group international alliance of law firms. Shoosmiths' national banking and finance team advises clients on a range of financing transactions across a wide variety of sectors, often with a multi-jurisdictional element. The team acts for borrowers, lenders and investors with expertise extending to corporate lending, acquisition finance, real estate finance, rail, aviation and marine finance, invoice discounting and other asset-based lending and refinancings. ]]>{97B70EE8-C234-49C6-9A83-2430904C8E93}https://www.shoosmiths.co.uk/client-resources/legal-updates/what-an-independent-scotland-could-mean-for-your-business-8044.aspxWhat an independent Scotland could mean for your business The 24 March 2016 is the proposed date for independence from the parliamentary union of 1707 if Scotland votes 'Yes' in the referendum in two months' time. We look at what it could mean for UK businesses if Scotland decides to become an independent country. What will the future hold? The future of an independent Scotland would be determined by how Scotland votes in elections, following a positive referendum result and on the outcome of legal debates and negotiations in the transitionary period in various contexts, such as EU membership and currency. It is difficult to know what will happen and how it will affect UK businesses but the current Scottish government has declared its priorities for action should it be re-elected which give us some indication of what might come to pass. 1. Groats, Merks or Unicorns*: what will you pay your employees in? One of the key issues in the current debate is what the currency would be in an independent Scotland. The current Scottish government's position is that the pound is Scotland's currency just as much as it is the rest of the UK's (rUK) and proposes simply to retain the pound. Pro union spokespersons in all three major UK parties have said that would not be in the interests of rUK and they wouldn't recommend entering into a currency union. Other options include an independent currency pegged to the pound. One further complication is Scotland's future membership of the EU and the process whereby Scotland might transition from a region of a member state to a member state in its own right. The Scottish government has made clear its intention not to join the European single currency. However, member states who have come into the EU since the Euro was created have been required as part of their accession negotiations to accept a binding obligation to adopt the Euro once they meet the qualifying criteria. Would Scotland lose the UK's opt-out from joining the Euro or might it be able to negotiate a similar opt out arrangement? In a worst case scenario, businesses with employees in Scotland could face problems adapting payroll systems to accommodate a different currency and could end up with dual systems in place. *Scottish denominations pre 1707 2. How will your employees in Scotland pay tax? An independent Scotland would be able to make changes to the tax system and might well introduce different tax regimes and laws. There are already indications that minimum wage rates would rise alongside the cost of living and different rates of income tax, personal tax allowances, national insurance contributions and corporation tax are likely to apply, again requiring an overhaul of payroll systems. Furthermore, in order to avoid the potential of double taxation, a tax treaty would have to be agreed with the UK prior to any independence day. 3. What pension provisions would you need to put in place? Pension legislation is a matter currently reserved to Westminster. On independence, this would pass to the Scottish government. The current Scottish government proposes amending the existing law so that over time the two regimes may well diverge. Employers currently operating UK final salary schemes may find themselves operating cross-border schemes, namely schemes which are located in one member state (i.e rUK) but which have members working in another member state (assuming Scotland becomes one). There is an EU requirement for such schemes to be fully funded at all times and employers will be faced with having to meet funding gaps. Transitional arrangements such as grace periods are currently proposed. Alternatively employers might look at splitting their schemes instead although this would be no mean task. Auto-enrolment will continue with some small adjustments such as setting up a Scottish Employment Savings Trust. Different interest rates, currency (potentially) and tax regimes are also likely to complicate pension provision for cross-border employers. 4. What employment rights and obligations would apply to your Scottish employees? Employment, industrial relations and health and safety are currently reserved to Westminster. On independence, these would pass to the Scottish government. The new Scottish parliament would amend the legislation currently applying to Scottish employees so whilst these are currently similar in Scotland to the rest of the UK, post independence there is likely to be a rapid divergence. The current Scottish government if re-elected would increase the national minimum wage 'at the very least' in line with inflation, encourage greater trade union participation, consult on employee representation on boards, consult on a target for female representation on boards and legislate as appropriate and, in general, strengthen employment protection (examples include restoring the 90 day consultation period and abolition of the recently introduced employee shareholder provisions). Key issues for review are zero-hour contracts and access to employment tribunals. The current Scottish government also proposes establishing a written constitution setting out the rights of its citizens which is also likely to impact on Scottish employment rights. Businesses and trade unions would have a role in shaping the constitution. The employment legislation derived from the EU would, assuming Scotland becomes a member state, require to be implemented by a Scottish government just as in rUK although there may be a divergence in terms of opt-outs. There is nothing however to prevent variations in how the directives are implemented or the extent to which Scotland might go further than strictly required. There is also the matter of whether rUK will remain a member of the EU. 5. How would your staff cross the border? For companies operating across England and Scotland, maintaining fluid movement of goods and labour is likely to be a key issue. The Common Travel Area currently allows people to travel freely between the UK, Ireland, the Isle of Man and the Channel Islands. The UK has opted out of the Schengen Agreement which abolishes all internal borders within the EU and imposes a common border policy on EU members. The UK and Ireland are the only countries in the EU which are not signatories to the Schengen Agreement. Membership of both the Common Travel Area and the Schengen Agreement is incompatible. Therefore unless Scotland negotiates to opt-out of the Schengen Agreement, certain border controls may become necessary between Scotland and rUK. This could restrict the movement of goods and people between England and Scotland causing logistical problems for businesses. The current Scottish government's position is that an independent Scotland will become part of the Common Travel Area and therefore labour and goods will be able to move between Scotland and rUK without being subjected to passport control or border checks. However others have expressed concern that an independent Scotland would be unable to negotiate EU membership unless they apply the Schengen rules as this is required of every new entrant to the EU. In this case, certain border controls may become necessary, unless a novel solution can be found or rUK also submits to the Schengen Agreement. Conclusion The referendum is due to take place on 18 September. Are you ready for such a fundamental change? Mon, 21 Jul 2014 00:00:00 +0100<![CDATA[Karen Harvie ]]><![CDATA[ The 24 March 2016 is the proposed date for independence from the parliamentary union of 1707 if Scotland votes 'Yes' in the referendum in two months' time. We look at what it could mean for UK businesses if Scotland decides to become an independent country. What will the future hold? The future of an independent Scotland would be determined by how Scotland votes in elections, following a positive referendum result and on the outcome of legal debates and negotiations in the transitionary period in various contexts, such as EU membership and currency. It is difficult to know what will happen and how it will affect UK businesses but the current Scottish government has declared its priorities for action should it be re-elected which give us some indication of what might come to pass. 1. Groats, Merks or Unicorns*: what will you pay your employees in? One of the key issues in the current debate is what the currency would be in an independent Scotland. The current Scottish government's position is that the pound is Scotland's currency just as much as it is the rest of the UK's (rUK) and proposes simply to retain the pound. Pro union spokespersons in all three major UK parties have said that would not be in the interests of rUK and they wouldn't recommend entering into a currency union. Other options include an independent currency pegged to the pound. One further complication is Scotland's future membership of the EU and the process whereby Scotland might transition from a region of a member state to a member state in its own right. The Scottish government has made clear its intention not to join the European single currency. However, member states who have come into the EU since the Euro was created have been required as part of their accession negotiations to accept a binding obligation to adopt the Euro once they meet the qualifying criteria. Would Scotland lose the UK's opt-out from joining the Euro or might it be able to negotiate a similar opt out arrangement? In a worst case scenario, businesses with employees in Scotland could face problems adapting payroll systems to accommodate a different currency and could end up with dual systems in place. *Scottish denominations pre 1707 2. How will your employees in Scotland pay tax? An independent Scotland would be able to make changes to the tax system and might well introduce different tax regimes and laws. There are already indications that minimum wage rates would rise alongside the cost of living and different rates of income tax, personal tax allowances, national insurance contributions and corporation tax are likely to apply, again requiring an overhaul of payroll systems. Furthermore, in order to avoid the potential of double taxation, a tax treaty would have to be agreed with the UK prior to any independence day. 3. What pension provisions would you need to put in place? Pension legislation is a matter currently reserved to Westminster. On independence, this would pass to the Scottish government. The current Scottish government proposes amending the existing law so that over time the two regimes may well diverge. Employers currently operating UK final salary schemes may find themselves operating cross-border schemes, namely schemes which are located in one member state (i.e rUK) but which have members working in another member state (assuming Scotland becomes one). There is an EU requirement for such schemes to be fully funded at all times and employers will be faced with having to meet funding gaps. Transitional arrangements such as grace periods are currently proposed. Alternatively employers might look at splitting their schemes instead although this would be no mean task. Auto-enrolment will continue with some small adjustments such as setting up a Scottish Employment Savings Trust. Different interest rates, currency (potentially) and tax regimes are also likely to complicate pension provision for cross-border employers. 4. What employment rights and obligations would apply to your Scottish employees? Employment, industrial relations and health and safety are currently reserved to Westminster. On independence, these would pass to the Scottish government. The new Scottish parliament would amend the legislation currently applying to Scottish employees so whilst these are currently similar in Scotland to the rest of the UK, post independence there is likely to be a rapid divergence. The current Scottish government if re-elected would increase the national minimum wage 'at the very least' in line with inflation, encourage greater trade union participation, consult on employee representation on boards, consult on a target for female representation on boards and legislate as appropriate and, in general, strengthen employment protection (examples include restoring the 90 day consultation period and abolition of the recently introduced employee shareholder provisions). Key issues for review are zero-hour contracts and access to employment tribunals. The current Scottish government also proposes establishing a written constitution setting out the rights of its citizens which is also likely to impact on Scottish employment rights. Businesses and trade unions would have a role in shaping the constitution. The employment legislation derived from the EU would, assuming Scotland becomes a member state, require to be implemented by a Scottish government just as in rUK although there may be a divergence in terms of opt-outs. There is nothing however to prevent variations in how the directives are implemented or the extent to which Scotland might go further than strictly required. There is also the matter of whether rUK will remain a member of the EU. 5. How would your staff cross the border? For companies operating across England and Scotland, maintaining fluid movement of goods and labour is likely to be a key issue. The Common Travel Area currently allows people to travel freely between the UK, Ireland, the Isle of Man and the Channel Islands. The UK has opted out of the Schengen Agreement which abolishes all internal borders within the EU and imposes a common border policy on EU members. The UK and Ireland are the only countries in the EU which are not signatories to the Schengen Agreement. Membership of both the Common Travel Area and the Schengen Agreement is incompatible. Therefore unless Scotland negotiates to opt-out of the Schengen Agreement, certain border controls may become necessary between Scotland and rUK. This could restrict the movement of goods and people between England and Scotland causing logistical problems for businesses. The current Scottish government's position is that an independent Scotland will become part of the Common Travel Area and therefore labour and goods will be able to move between Scotland and rUK without being subjected to passport control or border checks. However others have expressed concern that an independent Scotland would be unable to negotiate EU membership unless they apply the Schengen rules as this is required of every new entrant to the EU. In this case, certain border controls may become necessary, unless a novel solution can be found or rUK also submits to the Schengen Agreement. Conclusion The referendum is due to take place on 18 September. Are you ready for such a fundamental change? ]]>{40676385-1B6C-45E6-944A-8408B7615999}https://www.shoosmiths.co.uk/client-resources/legal-updates/reducing-tax-on-investment-properties-8031.aspxReducing tax on investment properties Many landlords hold their properties personally. This means that income received on rental properties is charged at income tax rates of up to 45%. When the property is sold capital gains tax (CGT) is chargeable at up to 28%. In contrast, rental income profits and gains in a company are charged to corporation tax at a maximum of 21% and, where a property is sold by a company, an indexation allowance is given to reduce any taxable gain it makes on the sale. However, in order to access the more favourable tax treatment provided by corporate ownership, it is necessary to transfer the rental properties into the company, which normally triggers a CGT charge. Whilst there are provisions deferring a tax charge on the transfer of assets to a company, these only apply where the asset is a business asset rather than an investment asset. Generally, a rental property is seen as an investment asset and not a business asset unless it is furnished holiday accommodation where it is then treated as a business and therefore CGT deferral can apply. Recent developments The recent case of Ramsay v HMRC considered whether or not a personally owned rental property could be treated as a business asset for CGT purposes. If it was a business asset then the transfer of the property into the company would not trigger a CGT charge but, if it was an investment asset, it would. In this case the taxpayer, Mrs Ramsay, owned a building divided into 10 flats, of which 5 were occupied. She transferred the building to a new company in exchange for the company issuing shares to her. The case was first heard by the First Tier Tribunal which, in arriving at its decision, relied on previous judgments which considered the meaning of business in the context of national insurance and inheritance tax. It thought the key factor in deciding whether rental income is a business is the nature and type of extra services a landlord provides (for example repairs, redecoration, etc) and, in particular, whether the activities involved are over and above those required in a normal property rental activity. In its view Mrs Ramsay did not provide enough extra services to make her property activities count as a business for capital gains. The Upper Tribunal judge took a different view. He said that the scale of operations was the proper test. In his view, provided the degree of activity was more than what would normally be undertaken by a passive property investor, this was sufficient to constitute a business for the purposes of the CGT legislation. Conclusion For any landlords thinking of incorporating their business in order to access the lower rates of corporation tax, this case represents an important opportunity. However, for those landlords who own only a few properties, one would have to consider carefully whether their activities are sufficient to constitute a business for CGT purposes. It would also be necessary to take into account the stamp duty land tax cost and the cost of any incorporation, although it may be possible to take steps to mitigate this cost. Thu, 17 Jul 2014 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ Many landlords hold their properties personally. This means that income received on rental properties is charged at income tax rates of up to 45%. When the property is sold capital gains tax (CGT) is chargeable at up to 28%. In contrast, rental income profits and gains in a company are charged to corporation tax at a maximum of 21% and, where a property is sold by a company, an indexation allowance is given to reduce any taxable gain it makes on the sale. However, in order to access the more favourable tax treatment provided by corporate ownership, it is necessary to transfer the rental properties into the company, which normally triggers a CGT charge. Whilst there are provisions deferring a tax charge on the transfer of assets to a company, these only apply where the asset is a business asset rather than an investment asset. Generally, a rental property is seen as an investment asset and not a business asset unless it is furnished holiday accommodation where it is then treated as a business and therefore CGT deferral can apply. Recent developments The recent case of Ramsay v HMRC considered whether or not a personally owned rental property could be treated as a business asset for CGT purposes. If it was a business asset then the transfer of the property into the company would not trigger a CGT charge but, if it was an investment asset, it would. In this case the taxpayer, Mrs Ramsay, owned a building divided into 10 flats, of which 5 were occupied. She transferred the building to a new company in exchange for the company issuing shares to her. The case was first heard by the First Tier Tribunal which, in arriving at its decision, relied on previous judgments which considered the meaning of business in the context of national insurance and inheritance tax. It thought the key factor in deciding whether rental income is a business is the nature and type of extra services a landlord provides (for example repairs, redecoration, etc) and, in particular, whether the activities involved are over and above those required in a normal property rental activity. In its view Mrs Ramsay did not provide enough extra services to make her property activities count as a business for capital gains. The Upper Tribunal judge took a different view. He said that the scale of operations was the proper test. In his view, provided the degree of activity was more than what would normally be undertaken by a passive property investor, this was sufficient to constitute a business for the purposes of the CGT legislation. Conclusion For any landlords thinking of incorporating their business in order to access the lower rates of corporation tax, this case represents an important opportunity. However, for those landlords who own only a few properties, one would have to consider carefully whether their activities are sufficient to constitute a business for CGT purposes. It would also be necessary to take into account the stamp duty land tax cost and the cost of any incorporation, although it may be possible to take steps to mitigate this cost. ]]>{F8D292DE-995E-4E91-819A-78DA79EE460A}https://www.shoosmiths.co.uk/client-resources/legal-updates/the-accelerated-payments-proposal-further-bad-news-for-taxpayers-7919.aspxThe accelerated payments proposal: Further bad news for taxpayers Controversial measures to tackle mass marketed tax avoidance schemes were set out in this year's Finance Bill. The measures have now been approved and will become law in mid to late July. They are part of a continuing drive by HM Revenue &amp; Customs (HMRC) to deter people from entering into tax avoidance schemes by removing the cash flow advantages. Under the proposals HMRC will, in certain circumstances, be able to issue 'accelerated payment' notices to taxpayers. These notices will demand advance payment of tax even if the matter has not been settled at the time. The taxpayer can still fight his case and recover the money if he wins, but the price of doing so is 'pay now, dispute the tax later'. Detailed Provisions The accelerated payment notices apply to most taxes including income tax, capital gains tax, corporation tax and inheritance tax. HMRC will be able to issue an accelerated payment notice to a taxpayer who: has entered into arrangements which give rise to a tax advantage the tax advantage is the subject of an ongoing enquiry or appeal, and one of the following applies: an arrangement falling within the 'Disclosure of Tax Avoidance Schemes' (DOTAS) regime has been used the matter in dispute is, in HMRC's view, sufficiently similar to a matter which has been decided by the Tribunal or Courts in HMRC's favour (Follower Notice), or HMRC seeks to counteract a tax advantage by use of the General Anti-Abuse Rule (GAAR) DOTAS regime Under the DOTAS rules, HMRC allocates a Scheme Reference Number (SRN) to promoters of tax avoidance schemes who have notified HMRC of the arrangements. Promoters then provide the SRN to users of the schemes who enter the SRN on their tax returns. Follower Notice This applies where a final decision in a tax case has been reached and HMRC considers that the decision in the judgment applies to other taxpayers so as to cancel a claimed tax advantage. If this is the case HMRC can issue a Follower Notice to other taxpayers. This will enable it to issue an accelerated payment notice (at the same time or after the issue of the Follower Notice). GAAR Under the GAAR, HMRC can counteract (by the issuing of a counteraction notice) a tax advantage claimed by a taxpayer. However, the GAAR only applies to arrangements that have been entered into on or after 17 July 2013. Following the issue of an accelerated payment notice, the taxpayer has 90 days in which to pay the amount demanded, or can challenge the amount charged by the notice by making representations to HMRC. If the taxpayer decides to challenge the notice, HMRC will consider the representations he makes and either confirm or reduce the amount that the taxpayer is obliged to pay (which may be different from the amount demanded by the original notice), and the taxpayer will have to pay that amount by the later of (i) 90 days after the issue of the original notice; and (ii) 30 days after HMRC confirms the amount due. Penalties apply for the late payment of the sums demanded. However, it may be possible, in appropriate cases, for formal "time to pay" arrangements to be put in place. Such time to pay arrangements will override the due dates and penalty provisions for late payment that would otherwise apply. Conclusion Whilst the primary objective of the measure is to tackle schemes aimed at high net worth individuals, the proposals are also wide enough to catch corporates. A real concern is the impact that an unexpected tax demand could have on individuals who may not have the resources to settle the demand, as well as the retrospective nature of the legislation. Taxpayers will have to consider carefully any demands that arise as a result of these new provisions. HMRC anticipates that this new proposal will be subject to legal challenge. It is worth noting that there are plans to recruit a significant number of new judges for the first tier and upper tier tax tribunals to deal with the expected appeals. Mon, 07 Jul 2014 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ Controversial measures to tackle mass marketed tax avoidance schemes were set out in this year's Finance Bill. The measures have now been approved and will become law in mid to late July. They are part of a continuing drive by HM Revenue &amp; Customs (HMRC) to deter people from entering into tax avoidance schemes by removing the cash flow advantages. Under the proposals HMRC will, in certain circumstances, be able to issue 'accelerated payment' notices to taxpayers. These notices will demand advance payment of tax even if the matter has not been settled at the time. The taxpayer can still fight his case and recover the money if he wins, but the price of doing so is 'pay now, dispute the tax later'. Detailed Provisions The accelerated payment notices apply to most taxes including income tax, capital gains tax, corporation tax and inheritance tax. HMRC will be able to issue an accelerated payment notice to a taxpayer who: has entered into arrangements which give rise to a tax advantage the tax advantage is the subject of an ongoing enquiry or appeal, and one of the following applies: an arrangement falling within the 'Disclosure of Tax Avoidance Schemes' (DOTAS) regime has been used the matter in dispute is, in HMRC's view, sufficiently similar to a matter which has been decided by the Tribunal or Courts in HMRC's favour (Follower Notice), or HMRC seeks to counteract a tax advantage by use of the General Anti-Abuse Rule (GAAR) DOTAS regime Under the DOTAS rules, HMRC allocates a Scheme Reference Number (SRN) to promoters of tax avoidance schemes who have notified HMRC of the arrangements. Promoters then provide the SRN to users of the schemes who enter the SRN on their tax returns. Follower Notice This applies where a final decision in a tax case has been reached and HMRC considers that the decision in the judgment applies to other taxpayers so as to cancel a claimed tax advantage. If this is the case HMRC can issue a Follower Notice to other taxpayers. This will enable it to issue an accelerated payment notice (at the same time or after the issue of the Follower Notice). GAAR Under the GAAR, HMRC can counteract (by the issuing of a counteraction notice) a tax advantage claimed by a taxpayer. However, the GAAR only applies to arrangements that have been entered into on or after 17 July 2013. Following the issue of an accelerated payment notice, the taxpayer has 90 days in which to pay the amount demanded, or can challenge the amount charged by the notice by making representations to HMRC. If the taxpayer decides to challenge the notice, HMRC will consider the representations he makes and either confirm or reduce the amount that the taxpayer is obliged to pay (which may be different from the amount demanded by the original notice), and the taxpayer will have to pay that amount by the later of (i) 90 days after the issue of the original notice; and (ii) 30 days after HMRC confirms the amount due. Penalties apply for the late payment of the sums demanded. However, it may be possible, in appropriate cases, for formal "time to pay" arrangements to be put in place. Such time to pay arrangements will override the due dates and penalty provisions for late payment that would otherwise apply. Conclusion Whilst the primary objective of the measure is to tackle schemes aimed at high net worth individuals, the proposals are also wide enough to catch corporates. A real concern is the impact that an unexpected tax demand could have on individuals who may not have the resources to settle the demand, as well as the retrospective nature of the legislation. Taxpayers will have to consider carefully any demands that arise as a result of these new provisions. HMRC anticipates that this new proposal will be subject to legal challenge. It is worth noting that there are plans to recruit a significant number of new judges for the first tier and upper tier tax tribunals to deal with the expected appeals. ]]>{75589331-078F-4AF2-ACC9-34127A330C05}https://www.shoosmiths.co.uk/news/press-releases/shoosmiths-makes-strategic-hire-with-wealth-expert-7820.aspxShoosmiths makes strategic hire with wealth expert National law firm Shoosmiths is growing its wealth protection team with the strategic hire of Jane Whitfield. Jane joins Shoosmiths from Wellers Law Group where she was senior solicitor in the private client and charity law teams. Download hi-res image Jane Whitfield In addition to serving individual clients' needs in Shoosmiths Access Legal - Shoosmiths' private client arm - Jane's appointment will enhance Shoosmiths' overall offering to corporate and commercial clients looking for wealth, tax and estate planning advice. Jane will also be on hand to advise charities on setting up trading subsidiaries and obtaining business rate relief when occupying commercial property buildings. Business owners and entrepreneurs can also look to Jane for expert advice on setting up charitable foundations. Jane Whitfield said: 'Shoosmiths is famous for its client experience and it is exciting to be part of a firm that has won national awards for client and employee satisfaction. Serving clients is at the heart of what Shoosmiths does, and has values that I share. 'It is a good feeling knowing your expertise can bridge the gaps between the private client, corporate and commercial departments at Shoosmiths and Shoosmiths Access Legal, and am looking forward to joining the team.' Commenting on Jane's appointment, Charlotte Dunn, head of Shoosmiths Access Legal's wealth protection team, said: 'Jane is an accomplished legal adviser who brings a unique blend of commercial application and strong technical, academic and research skills. Jane has a proven track record of building and maintaining successful client relationships and I am certain she will be a valuable addition to our strong team.' Jane is a widely respected practitioner, counting more than 13 years' experience as a solicitor, and is a contributor to law-making at local and national level. Jane has authored or contributed to many Law Society guides and advisory handbooks aimed at the charities sector in particular. In September 2014, Jane will take up the role of Chair of the Law Society's Wills &amp; Equity Committee whilst embarking on first stages of qualification as a notary. Wed, 18 Jun 2014 00:00:00 +0100<![CDATA[Charlotte Dunn ]]><![CDATA[ National law firm Shoosmiths is growing its wealth protection team with the strategic hire of Jane Whitfield. Jane joins Shoosmiths from Wellers Law Group where she was senior solicitor in the private client and charity law teams. Download hi-res image Jane Whitfield In addition to serving individual clients' needs in Shoosmiths Access Legal - Shoosmiths' private client arm - Jane's appointment will enhance Shoosmiths' overall offering to corporate and commercial clients looking for wealth, tax and estate planning advice. Jane will also be on hand to advise charities on setting up trading subsidiaries and obtaining business rate relief when occupying commercial property buildings. Business owners and entrepreneurs can also look to Jane for expert advice on setting up charitable foundations. Jane Whitfield said: 'Shoosmiths is famous for its client experience and it is exciting to be part of a firm that has won national awards for client and employee satisfaction. Serving clients is at the heart of what Shoosmiths does, and has values that I share. 'It is a good feeling knowing your expertise can bridge the gaps between the private client, corporate and commercial departments at Shoosmiths and Shoosmiths Access Legal, and am looking forward to joining the team.' Commenting on Jane's appointment, Charlotte Dunn, head of Shoosmiths Access Legal's wealth protection team, said: 'Jane is an accomplished legal adviser who brings a unique blend of commercial application and strong technical, academic and research skills. Jane has a proven track record of building and maintaining successful client relationships and I am certain she will be a valuable addition to our strong team.' Jane is a widely respected practitioner, counting more than 13 years' experience as a solicitor, and is a contributor to law-making at local and national level. Jane has authored or contributed to many Law Society guides and advisory handbooks aimed at the charities sector in particular. In September 2014, Jane will take up the role of Chair of the Law Society's Wills &amp; Equity Committee whilst embarking on first stages of qualification as a notary. ]]>{C5E4F4B9-5D9C-40E1-A9F2-0DC157E53667}https://www.shoosmiths.co.uk/client-resources/legal-updates/an-alternative-to-the-golden-brick-scheme-7520.aspxAn alternative to the &#39;golden brick&#39; scheme It has generally been the case that, when house builders are selling partly completed dwellings to registered social landlords (RSLs), they try to structure the sale so as to constitute a 'golden brick' type transaction. Golden brick is a term of art and means that, where the conditions are satisfied, the house builder can sell housing developments to RSLs that have progressed beyond the golden brick stage, at the zero rate of VAT. This means that the house builder is entitled to full recovery of VAT incurred on costs associated with the development and the RSL acquires the development at no VAT cost. HMRC accept that, at the point the first brick is laid above foundation level (the golden brick), the house builder can zero rate the sale or long-lease in land that will form the site of a building provided a building is clearly under construction. Following the sale the house builder will usually complete the construction of the properties, and the RSL will either make VAT exempt supplies of the properties (e.g. short term lets) or, possibly, zero rated supplies if it grants long leases on the properties or sells the freehold. An alternative to the golden brick It is not always going to be possible to structure a transaction so as to qualify as a golden brick transaction. From the house builder's perspective an alternative, in order to avoid any loss of input VAT, is to structure the transaction as a transfer of a going concern (TOGC). HMRC accept that, where the facts support it, such a transfer can be constituted as a TOGC. The HMRC Manual which discusses the possibility refers to the case of the Golden Oak Partnership (Golden Oak). In Golden Oak, the seller was a property development company and the purchaser company intended to continue the development started by the seller. The seller had carried out infrastructure works including the construction of a road and driveways, an electricity substation, a gas meter station, and underground sewerage pumping station and piping from the pumping station to the public sewers which meant that the land was in course of active development. The purchaser continued the construction work without any break. The tribunal held this was a TOGC. In contrast, in Gulf Trading Management Ltd the seller's only action taken in respect of the land was an inspection of the soil, drawings for planning permission submitted and putting up a fence around the plot. The land was not being actively developed when it was sold. In order to fall within the Golden Oak criteria, this means that the house builder must be actively developing dwellings on a plot of land, for example, through planning, design, and the carrying out of service and infrastructure works and excavations. The house builder can then sell the land under development to the RSL after the development has commenced but before the building has progressed beyond foundation stage. It will be necessary for the RSL to take title to the land under development, and complete the development of the dwellings in question. Conclusion In the right circumstances structuring such transactions as TOGCs could prove a valuable alternative, if golden brick' treatment is not available. Wed, 07 May 2014 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ It has generally been the case that, when house builders are selling partly completed dwellings to registered social landlords (RSLs), they try to structure the sale so as to constitute a 'golden brick' type transaction. Golden brick is a term of art and means that, where the conditions are satisfied, the house builder can sell housing developments to RSLs that have progressed beyond the golden brick stage, at the zero rate of VAT. This means that the house builder is entitled to full recovery of VAT incurred on costs associated with the development and the RSL acquires the development at no VAT cost. HMRC accept that, at the point the first brick is laid above foundation level (the golden brick), the house builder can zero rate the sale or long-lease in land that will form the site of a building provided a building is clearly under construction. Following the sale the house builder will usually complete the construction of the properties, and the RSL will either make VAT exempt supplies of the properties (e.g. short term lets) or, possibly, zero rated supplies if it grants long leases on the properties or sells the freehold. An alternative to the golden brick It is not always going to be possible to structure a transaction so as to qualify as a golden brick transaction. From the house builder's perspective an alternative, in order to avoid any loss of input VAT, is to structure the transaction as a transfer of a going concern (TOGC). HMRC accept that, where the facts support it, such a transfer can be constituted as a TOGC. The HMRC Manual which discusses the possibility refers to the case of the Golden Oak Partnership (Golden Oak). In Golden Oak, the seller was a property development company and the purchaser company intended to continue the development started by the seller. The seller had carried out infrastructure works including the construction of a road and driveways, an electricity substation, a gas meter station, and underground sewerage pumping station and piping from the pumping station to the public sewers which meant that the land was in course of active development. The purchaser continued the construction work without any break. The tribunal held this was a TOGC. In contrast, in Gulf Trading Management Ltd the seller's only action taken in respect of the land was an inspection of the soil, drawings for planning permission submitted and putting up a fence around the plot. The land was not being actively developed when it was sold. In order to fall within the Golden Oak criteria, this means that the house builder must be actively developing dwellings on a plot of land, for example, through planning, design, and the carrying out of service and infrastructure works and excavations. The house builder can then sell the land under development to the RSL after the development has commenced but before the building has progressed beyond foundation stage. It will be necessary for the RSL to take title to the land under development, and complete the development of the dwellings in question. Conclusion In the right circumstances structuring such transactions as TOGCs could prove a valuable alternative, if golden brick' treatment is not available. ]]>{ADE050FA-AFB3-42A0-ACB8-79E579CEE9FB}https://www.shoosmiths.co.uk/client-resources/legal-updates/budget-summary-2014-tax-highlights-7215.aspxBudget summary 2014: tax highlights The Chancellor delivered the Budget 2014 yesterday (19 March). The following is a summary of the main tax points of interest: Business taxes Corporation Tax - as previously announced, the main rate for corporation tax will fall from 23% to 21% in April 2014. It will reach 20% in April 2015. The small profits rate remains at 20% meaning that from April 2015 the rates will be aligned. Corporation Tax - amending loss relief provisions - as announced in Autumn Statement 2013, the rules restricting the availability of relief for corporation tax trading losses where a company changes ownership will be eased. The changes will take effect for any changes of company ownership which occur on or after 1 April 2014. Employment Allowance - as announced in Budget 2013, a relief for the first £2,000 of employer's national insurance contributions will be introduced from April 2014 to help businesses expand by reducing the costs of employment. Research and Development ("R&amp;D") tax credits - the rate of the payable tax credit under the SME R&amp;D tax credit scheme will be increased from 11% to 14.5% from April 2014. Bank Levy - from 1 January 2014, the full rate of the bank levy will be set to 0.156%. Stamp Duty Reserve Tax ("SDRT") - as announced in Budget 2013, from 30 March 2014, the SDRT charge on unit trusts and open-ended investment companies will be abolished. The legislation will retain an SDRT charge on non pro-rata in specie redemptions. Stamp Tax on Shares - growth markets - as announced in Budget 2013, from 28 April 2014, the government will abolish stamp duty and SDRT on shares in companies quoted on recognised growth markets. This includes shares listed on AIM. VAT - place of supply and Mini One Stop Shop ("MOSS") - as announced at Budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the Member State in which the consumer is located. The government will also legislate for the introduction of a Mini One Stop Shop from 1 January 2015. This will give businesses accounting for VAT due on these types of supplies in other Member States the option of only registering in the UK, using a single return. VAT thresholds - from 1 April 2014, the VAT registration threshold will be increased from £79,000 to £81,000, the deregistration threshold will be increased from £77,000 to £79,000 and the registration and deregistration threshold for relevant acquisitions from other EU Member States will be increased from £79,000 to £81,000. Personal taxes Income Tax - personal allowance: as previously announced, the personal allowance will increase from April 2014 to £10,000. A further increase to £10,500 from April 2015 has been announced with the basic rate limit reducing to £31,785. The personal allowance continues to be withdrawn for those with incomes above £100,000 giving a marginal rate of tax of 60% in the band between £100,000 and £120,000. The personal allowance will be increased by CPI from 2016-17. The government intends to consult on whether and how the allowance could be restricted to UK residents and those living outside the UK who have strong economic connections to the UK. Capital Gains ("CGT") - annual exemption - as previously announced the annual exemption for 2014-15 will be £11,000. For 2015-16, the annual exemption will be £11,100. Income Tax - savings - the starting rate for savings income will be reduced from 10% to 0% and the band to which it applies extended from £2,880 in 2014-15 to £5,000 from 6 April 2015. The complexity of the calculations remains where the tax payer has other non-savings income. Scottish Income Tax - provisions are being made for the interaction of the Scottish rate with the rest of the UK tax system. National Insurance - the National Insurance upper earnings and upper profits limits will be increased in line with the higher rate threshold. Income tax - 2015-16 - the higher rate threshold will be increased to £42,285 and the basic rate limit will be set at £31,785 for 2015-16. The increase in the 40% threshold will continue to draw more people into paying higher rate income tax. Income Tax - married couples - from 2015-16, married couples and civil partners will be able to transfer 10% of their income tax personal allowance to their spouse or civil partner where neither is a higher or additional rate tax payer. Income Tax - relief for qualifying loan interest - from April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies will be extended to investments in such companies which are resident throughout the European Economic Area. Inheritance Tax ("IHT") - the government will extend the freeze of the IHT threshold at £325,000 until 2017-18. IHT - simplification of trusts - the filing and payment dates for IHT relevant property trust charges will be simplified. Income which arises in such trusts and is not distributed for 5 years will form part of the trust capital when calculating the 10 year anniversary charge. The government will consult further on the proposal to split the IHT nil-rate band available to trusts and simplify the trust charges with legislation in Finance Bill 2015. New ISA - from 1 July 2014, a new ISA will be introduced for cash and stocks and shares with a higher annual limit of £15,000 and no restriction on what proportion can be invested in cash. ISA - the Junior ISA and Child Trust Fund annual subscription limits will both be increased to £4,000 from 1 July 2014. Flexible Pension Benefits - March 2014 - from 27 March 2014 drawdown has been increased to 150% of the equivalent annuity, under the flexible drawdown provisions the amount of other guaranteed pension income required is being reduced to £12,000 (previously £20,000), and it will be easier to commute small pension pots to a lump sum payable immediately. Pension Contributions - the cap on annual pension contributions falls to £40,000 per annum from 6 April 2014. Unused relief from the previous three years can be carried forward. Flexible Pensions Benefits 2015 - legislation will be introduced to allow those with a defined pension contribution to draw down any amount they like from it after the age of 55 from April 2015, subject to the marginal rate of income tax. Additional changes will also be made to give greater choice over how defined contribution pensions can be accessed. Enterprise Investment Scheme ("EIS") and Venture Capital Trusts ("VCTs") - as previously announced, a number of changes to EIS and VCTs scheme will be made from April 2014, as follows: from the date of Royal Assent of Finance Bill 2014, companies benefiting from Renewables Obligation Certificates and/or the Renewable Heat Incentive will be excluded from the schemes (this will also apply to SEIS) from the date of Royal Assent of Finance Bill 2014, investors will be allowed to subscribe for VCT shares via nominees from 6 April 2014, income tax relief will be restricted on investments in VCTs that are conditionally linked to a share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT from 6 April 2014, VCTs will be prevented from returning capital within 3 years of the end of the accounting period in which shares were issued to investors that does not relate to profits on investments from 6 April 2014, notwithstanding the general time limits for making assessments to recover tax, HMRC will be able to withdraw tax relief if VCT shares are disposed of within 5 years of acquisition. Furthermore, due to the government's concerns about the use of contrived structures to allow investment in low-risk activities that benefit from EIS or VCT, there will be a wider consultation and evidence gathering exercise over summer 2014. EIS and SEIS - the government will consult on the need to accommodate the use of convertible loans in EIS and SEIS. Seed enterprise investment scheme ("SEIS") - the government will make the SEIS permanent. In addition, the associated capital gains tax reinvestment relief will be a permanent feature of SEIS, providing relief on half the qualifying gains that individuals reinvest in SEIS qualifying companies in 2014-15 or subsequent years. Social investment tax relief - as previously announced, from 6 April 2014 the government will introduce a range of income and capital tax reliefs on investments by individuals in social enterprises, with the rate of income tax relief being set at 30%. This rate will allow eligible social enterprises to receive a maximum of around £290,000 investment over 3 years. Partnerships - as has already been widely announced, the government will introduce legislation that will take effect from April 2014 to counter the disguising of employment relationships in limited liability partnerships, prevent the tax motivated allocation of business profits to corporate partners, and the tax-motivated disposals or assets through partnerships. Partnerships - The government will publish a draft partnership manual for comment in April 2014 linking all HMRC partnership guidance. The government will implement 6 additional short term fixes identified in the OTS's interim review and examine the feasibility of 3 further OTS recommendations by the end of 2014. Employment Employer-funded occupational health treatments - as announced in Budget 2013, there will be a tax exemption for amounts (up to £500) paid by employers for medical treatment for employees. The tax exemption is expected to become available with the rollout of the Health and Work Service in October 2014. Employer provided benefits in kind - beneficial loans - as announced in the Budget 2013, the threshold for the small loans exemption limit will be increased from £5,000 to £10,000 from April 2014. Employee ownership - as announced in the Budget 2013, the government will introduce a package of tax reliefs to support the employee ownership sector. Share Incentive Plans ("SIP") and Save as You Earn Limits ("SAYE") - as announced in the Autumn Statement 2013, from April 2014, the annual limit for SIPs will increase to £3,600 per year for free shares and to £1,800 per year for partnership shares. The monthly limit for SAYE arrangements will increase from £250 to £500. Property SDLT - 15% rate - the 15% SDLT rate applied to residential properties purchased by certain non-natural persons will be extended to properties purchased for over £500,000 with effect from 20 March 2014. Annual Tax on Enveloped Dwellings ("ATED") - The government will introduce two new bands for ATED. Residential properties worth over £1 million will be brought into the charge with effect from 1 April 2015. The charge for these properties in 2015-16 will be £7,000. Properties worth over £500,000 will be brought into the charge with effect from 1 April 2016. The charge for these properties in 2016-17 will be £3,500. These charges will be increased by CPI each year. CGT - The government will extend the related CGT charge on disposals of properties liable to ATED for residential properties worth over £1 million with effect from 6 April 2015 and for residential properties worth over £500,000 with effect from 6 April 2016. The government will consult over summer 2014 on possible options to simplify the administration of ATED. Capital Gains ("CGT") - non-residents - as announced in Autumn Statement 2013, from April 2015, CGT will be introduced on gains made by non-residents disposing of UK residential property. A consultation on how to best implement this will be published shortly. Capital Allowances - Annual Investment Allowance ("AIA") - the AIA will be increased to £500,000 for expenditure on plant and machinery made on or after 1 April 2014 (for corporation tax) or 6 April 2014 (for income tax) until 31 December 2015, after which it will return to £25,000. Capital Allowances - Enterprise Zones - the period in which enhanced capital allowances are available in Enterprise Zones will be extended by 3 years until 31 March 2020. Capital Allowances - Enhanced Capital Allowances ("ECA") for zero emissions goods vehicles - the ECA for zero emissions goods vehicles will be extended to 31 March 2018. The availability of the ECA will be limited to businesses that do not claim the government's Plug-in Van Grant. Business Premises Renovation Allowance ("BPRA") - with effect from April 2014, changes to the BPRA regime will be made to limit it to building and renovation work and associated services, but the time period in which works must be undertaken will be extended to 36 months. ECA - energy saving and water efficient technologies - the list of designated energy-saving and water-efficient technologies qualifying for ECA will be updated during summer 2014, subject to state aid approval. Capital Gains - private residence relief - as announced in Autumn Statement 2013, the final period exemption will be reduced from 36 months to 18 months in most cases from 6 April 2014. Stamp Duty Land Tax ("SDLT") - charities relief - from the date of Royal Assent of the Finance Bill 2014, the legislation will make it clear that partial relief from SDLT is available where a charity purchases property jointly with a non-charity. The charity will be able to claim relief from SDLT on the proportion of the purchase attributable to it. SDLT - authorised property funds - the government will consult on the SDLT treatment of the seeding of property authorised investment funds and the wider SDLT treatment of co-ownership authorised contractual schemes. Business rates - Enterprise Zones - the deadline by which businesses need to have located in an Enterprise Zone in order to claim business rates discounts will be extended by 3 years until 31 March 2018. HMRC and tax administration Self service time to pay - the government will introduce a new online system to enable people in financial difficulty to set up a payment plan for self-assessed income tax. Customs civil penalties - Following consultation, the government will implement changes to bring the customs civil penalty regime in line with other HMRC penalties. Self-employed National Insurance contributions ("NICs") - from April 2016, Class 2 NICs for the self-employed will be collected through Self Assessment. Employee share schemes - as announced at Budget 2013, the government will implement 9 OTS recommendations to simplify the taxation of employment-related securities. Following consultation, the government has decided to delay introducing new rules for employment-related securities held by internationally mobile employees until April 2015, after which time all employment-related securities will be subject to these rules. The government will additionally consult on the OTS recommendation to introduce a 'marketable security' into rules for taxing employment-related securities and on the proposal to introduce an employee shareholding vehicle. Construction Industry Scheme (CIS) - The government will consult in summer 2014 on options to improve the operation of the CIS for smaller businesses and to introduce mandatory on-line filing for contractors. Avoidance and evasion Upfront payments - users of disclosed tax avoidance schemes and schemes covered by the General Anti-Abuse Rule ("GAAR") will be required to pay tax upfront. High risk promoters - The government will provide HMRC with new powers to tackle non-cooperative promoters of tax avoidance schemes. These powers will include the ability to issue conduct notices, breaches of which will trigger enhanced information powers with large financial penalties for non-compliance. Marketed tax avoidance schemes - the government will legislate to provide that HMRC may issue a notice to the user of a tax avoidance scheme that they should settle their dispute with HMRC when the claimed tax effect has been defeated in other litigation. If the taxpayer does not settle, they risk a penalty and must make upfront payment of the tax in dispute. Disclosure of Tax Avoidance Schemes regime (DOTAS) - the government will consult on extending the existing "hallmarks", and strengthening HMRC's powers to take non-compliance. Avoidance schemes using charities - as announced in the Autumn Statement 2013, the government is consulting further on measures to deter the use of charities established for the purpose of tax avoidance. Compensating adjustments - as previously announced legislation will be introduced, with effect from 25 October 2013, to prevent abuse of the rules relating to compensating adjustments in the transfer pricing code. Employment intermediaries facilitating false self-employment - As announced at Autumn Statement 2013, the government will amend existing legislation to prevent both on-short and off-shore employment intermediaries being used to avoid employment taxes by disguising employment as self-employment, with effect from April 2014. Dual contracts - As announced at Autumn Statement 2013, the government will legislate to prevent high earning non-domiciled individuals from avoiding tax by artificially dividing the duties of one employment between the UK and overseas. Transfer of corporate profits - with effect from 19 March 2014, where profits are transferred between group companies as part of tax avoidance arrangements, the relevant company's profits will be taxed as if the transfer had not occurred. Direct Recovery of Debts - the government will strengthen HMRC's powers to recover tax debts directly from debtors' bank and building society accounts, including ISAs. This will focus on debtors who owe at least £1,000 and have been contacted multiple times by HMRC to pay. A minimum aggregate balance of £5,000 will be left across all accounts, including ISAs, after the debt is recovered. The government will consult on the implementation of this measure shortly after Budget 2014. VAT - reverse charge - secondary legislation will be introduced to prevent missing intra-community fraud in the wholesale gas and electricity sectors through a reverse charge. Other Community Amateur Sports Clubs ("CASCs") - as announced at Autumn Statement 2013, the government will legislate to allow tax relief for donations of money from companies to CASCs. Gambling - Bingo duty will be reduced to 10% and the duty on fixed odds betting terminals will be increased to 25%. Sporting events - secondary legislation will be introduced to enable income and corporation tax relief to be given in relation to major sporting events. Theatres - with effect from 1 September 2014, a new theatre tax relief will be introduced at 25% for qualifying touring productions and 20% for other qualifying productions. Film Production - as announced at Autumn Statement 2013, from April 2014, for small and large budget films, relief will be available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter. The minimum UK expenditure requirement will be reduced from 25% to 10% and the government will modernise the cultural test. Aggregate levy rates - the aggregate levy rate will remain at £2 per tonne in 2014-15. Landfill tax rates - from 1 April 2015, the standard and lower rates of landfill tax will increase in line with the RPI, rounded to the nearest 5 pence. Air passenger duty - the government will reform air passenger duty by abolishing bands C and D from April 2015. Thu, 20 Mar 2014 00:00:00 Z<![CDATA[Kate Featherstone Tom Wilde ]]><![CDATA[ The Chancellor delivered the Budget 2014 yesterday (19 March). The following is a summary of the main tax points of interest: Business taxes Corporation Tax - as previously announced, the main rate for corporation tax will fall from 23% to 21% in April 2014. It will reach 20% in April 2015. The small profits rate remains at 20% meaning that from April 2015 the rates will be aligned. Corporation Tax - amending loss relief provisions - as announced in Autumn Statement 2013, the rules restricting the availability of relief for corporation tax trading losses where a company changes ownership will be eased. The changes will take effect for any changes of company ownership which occur on or after 1 April 2014. Employment Allowance - as announced in Budget 2013, a relief for the first £2,000 of employer's national insurance contributions will be introduced from April 2014 to help businesses expand by reducing the costs of employment. Research and Development ("R&amp;D") tax credits - the rate of the payable tax credit under the SME R&amp;D tax credit scheme will be increased from 11% to 14.5% from April 2014. Bank Levy - from 1 January 2014, the full rate of the bank levy will be set to 0.156%. Stamp Duty Reserve Tax ("SDRT") - as announced in Budget 2013, from 30 March 2014, the SDRT charge on unit trusts and open-ended investment companies will be abolished. The legislation will retain an SDRT charge on non pro-rata in specie redemptions. Stamp Tax on Shares - growth markets - as announced in Budget 2013, from 28 April 2014, the government will abolish stamp duty and SDRT on shares in companies quoted on recognised growth markets. This includes shares listed on AIM. VAT - place of supply and Mini One Stop Shop ("MOSS") - as announced at Budget 2013, the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the Member State in which the consumer is located. The government will also legislate for the introduction of a Mini One Stop Shop from 1 January 2015. This will give businesses accounting for VAT due on these types of supplies in other Member States the option of only registering in the UK, using a single return. VAT thresholds - from 1 April 2014, the VAT registration threshold will be increased from £79,000 to £81,000, the deregistration threshold will be increased from £77,000 to £79,000 and the registration and deregistration threshold for relevant acquisitions from other EU Member States will be increased from £79,000 to £81,000. Personal taxes Income Tax - personal allowance: as previously announced, the personal allowance will increase from April 2014 to £10,000. A further increase to £10,500 from April 2015 has been announced with the basic rate limit reducing to £31,785. The personal allowance continues to be withdrawn for those with incomes above £100,000 giving a marginal rate of tax of 60% in the band between £100,000 and £120,000. The personal allowance will be increased by CPI from 2016-17. The government intends to consult on whether and how the allowance could be restricted to UK residents and those living outside the UK who have strong economic connections to the UK. Capital Gains ("CGT") - annual exemption - as previously announced the annual exemption for 2014-15 will be £11,000. For 2015-16, the annual exemption will be £11,100. Income Tax - savings - the starting rate for savings income will be reduced from 10% to 0% and the band to which it applies extended from £2,880 in 2014-15 to £5,000 from 6 April 2015. The complexity of the calculations remains where the tax payer has other non-savings income. Scottish Income Tax - provisions are being made for the interaction of the Scottish rate with the rest of the UK tax system. National Insurance - the National Insurance upper earnings and upper profits limits will be increased in line with the higher rate threshold. Income tax - 2015-16 - the higher rate threshold will be increased to £42,285 and the basic rate limit will be set at £31,785 for 2015-16. The increase in the 40% threshold will continue to draw more people into paying higher rate income tax. Income Tax - married couples - from 2015-16, married couples and civil partners will be able to transfer 10% of their income tax personal allowance to their spouse or civil partner where neither is a higher or additional rate tax payer. Income Tax - relief for qualifying loan interest - from April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies will be extended to investments in such companies which are resident throughout the European Economic Area. Inheritance Tax ("IHT") - the government will extend the freeze of the IHT threshold at £325,000 until 2017-18. IHT - simplification of trusts - the filing and payment dates for IHT relevant property trust charges will be simplified. Income which arises in such trusts and is not distributed for 5 years will form part of the trust capital when calculating the 10 year anniversary charge. The government will consult further on the proposal to split the IHT nil-rate band available to trusts and simplify the trust charges with legislation in Finance Bill 2015. New ISA - from 1 July 2014, a new ISA will be introduced for cash and stocks and shares with a higher annual limit of £15,000 and no restriction on what proportion can be invested in cash. ISA - the Junior ISA and Child Trust Fund annual subscription limits will both be increased to £4,000 from 1 July 2014. Flexible Pension Benefits - March 2014 - from 27 March 2014 drawdown has been increased to 150% of the equivalent annuity, under the flexible drawdown provisions the amount of other guaranteed pension income required is being reduced to £12,000 (previously £20,000), and it will be easier to commute small pension pots to a lump sum payable immediately. Pension Contributions - the cap on annual pension contributions falls to £40,000 per annum from 6 April 2014. Unused relief from the previous three years can be carried forward. Flexible Pensions Benefits 2015 - legislation will be introduced to allow those with a defined pension contribution to draw down any amount they like from it after the age of 55 from April 2015, subject to the marginal rate of income tax. Additional changes will also be made to give greater choice over how defined contribution pensions can be accessed. Enterprise Investment Scheme ("EIS") and Venture Capital Trusts ("VCTs") - as previously announced, a number of changes to EIS and VCTs scheme will be made from April 2014, as follows: from the date of Royal Assent of Finance Bill 2014, companies benefiting from Renewables Obligation Certificates and/or the Renewable Heat Incentive will be excluded from the schemes (this will also apply to SEIS) from the date of Royal Assent of Finance Bill 2014, investors will be allowed to subscribe for VCT shares via nominees from 6 April 2014, income tax relief will be restricted on investments in VCTs that are conditionally linked to a share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT from 6 April 2014, VCTs will be prevented from returning capital within 3 years of the end of the accounting period in which shares were issued to investors that does not relate to profits on investments from 6 April 2014, notwithstanding the general time limits for making assessments to recover tax, HMRC will be able to withdraw tax relief if VCT shares are disposed of within 5 years of acquisition. Furthermore, due to the government's concerns about the use of contrived structures to allow investment in low-risk activities that benefit from EIS or VCT, there will be a wider consultation and evidence gathering exercise over summer 2014. EIS and SEIS - the government will consult on the need to accommodate the use of convertible loans in EIS and SEIS. Seed enterprise investment scheme ("SEIS") - the government will make the SEIS permanent. In addition, the associated capital gains tax reinvestment relief will be a permanent feature of SEIS, providing relief on half the qualifying gains that individuals reinvest in SEIS qualifying companies in 2014-15 or subsequent years. Social investment tax relief - as previously announced, from 6 April 2014 the government will introduce a range of income and capital tax reliefs on investments by individuals in social enterprises, with the rate of income tax relief being set at 30%. This rate will allow eligible social enterprises to receive a maximum of around £290,000 investment over 3 years. Partnerships - as has already been widely announced, the government will introduce legislation that will take effect from April 2014 to counter the disguising of employment relationships in limited liability partnerships, prevent the tax motivated allocation of business profits to corporate partners, and the tax-motivated disposals or assets through partnerships. Partnerships - The government will publish a draft partnership manual for comment in April 2014 linking all HMRC partnership guidance. The government will implement 6 additional short term fixes identified in the OTS's interim review and examine the feasibility of 3 further OTS recommendations by the end of 2014. Employment Employer-funded occupational health treatments - as announced in Budget 2013, there will be a tax exemption for amounts (up to £500) paid by employers for medical treatment for employees. The tax exemption is expected to become available with the rollout of the Health and Work Service in October 2014. Employer provided benefits in kind - beneficial loans - as announced in the Budget 2013, the threshold for the small loans exemption limit will be increased from £5,000 to £10,000 from April 2014. Employee ownership - as announced in the Budget 2013, the government will introduce a package of tax reliefs to support the employee ownership sector. Share Incentive Plans ("SIP") and Save as You Earn Limits ("SAYE") - as announced in the Autumn Statement 2013, from April 2014, the annual limit for SIPs will increase to £3,600 per year for free shares and to £1,800 per year for partnership shares. The monthly limit for SAYE arrangements will increase from £250 to £500. Property SDLT - 15% rate - the 15% SDLT rate applied to residential properties purchased by certain non-natural persons will be extended to properties purchased for over £500,000 with effect from 20 March 2014. Annual Tax on Enveloped Dwellings ("ATED") - The government will introduce two new bands for ATED. Residential properties worth over £1 million will be brought into the charge with effect from 1 April 2015. The charge for these properties in 2015-16 will be £7,000. Properties worth over £500,000 will be brought into the charge with effect from 1 April 2016. The charge for these properties in 2016-17 will be £3,500. These charges will be increased by CPI each year. CGT - The government will extend the related CGT charge on disposals of properties liable to ATED for residential properties worth over £1 million with effect from 6 April 2015 and for residential properties worth over £500,000 with effect from 6 April 2016. The government will consult over summer 2014 on possible options to simplify the administration of ATED. Capital Gains ("CGT") - non-residents - as announced in Autumn Statement 2013, from April 2015, CGT will be introduced on gains made by non-residents disposing of UK residential property. A consultation on how to best implement this will be published shortly. Capital Allowances - Annual Investment Allowance ("AIA") - the AIA will be increased to £500,000 for expenditure on plant and machinery made on or after 1 April 2014 (for corporation tax) or 6 April 2014 (for income tax) until 31 December 2015, after which it will return to £25,000. Capital Allowances - Enterprise Zones - the period in which enhanced capital allowances are available in Enterprise Zones will be extended by 3 years until 31 March 2020. Capital Allowances - Enhanced Capital Allowances ("ECA") for zero emissions goods vehicles - the ECA for zero emissions goods vehicles will be extended to 31 March 2018. The availability of the ECA will be limited to businesses that do not claim the government's Plug-in Van Grant. Business Premises Renovation Allowance ("BPRA") - with effect from April 2014, changes to the BPRA regime will be made to limit it to building and renovation work and associated services, but the time period in which works must be undertaken will be extended to 36 months. ECA - energy saving and water efficient technologies - the list of designated energy-saving and water-efficient technologies qualifying for ECA will be updated during summer 2014, subject to state aid approval. Capital Gains - private residence relief - as announced in Autumn Statement 2013, the final period exemption will be reduced from 36 months to 18 months in most cases from 6 April 2014. Stamp Duty Land Tax ("SDLT") - charities relief - from the date of Royal Assent of the Finance Bill 2014, the legislation will make it clear that partial relief from SDLT is available where a charity purchases property jointly with a non-charity. The charity will be able to claim relief from SDLT on the proportion of the purchase attributable to it. SDLT - authorised property funds - the government will consult on the SDLT treatment of the seeding of property authorised investment funds and the wider SDLT treatment of co-ownership authorised contractual schemes. Business rates - Enterprise Zones - the deadline by which businesses need to have located in an Enterprise Zone in order to claim business rates discounts will be extended by 3 years until 31 March 2018. HMRC and tax administration Self service time to pay - the government will introduce a new online system to enable people in financial difficulty to set up a payment plan for self-assessed income tax. Customs civil penalties - Following consultation, the government will implement changes to bring the customs civil penalty regime in line with other HMRC penalties. Self-employed National Insurance contributions ("NICs") - from April 2016, Class 2 NICs for the self-employed will be collected through Self Assessment. Employee share schemes - as announced at Budget 2013, the government will implement 9 OTS recommendations to simplify the taxation of employment-related securities. Following consultation, the government has decided to delay introducing new rules for employment-related securities held by internationally mobile employees until April 2015, after which time all employment-related securities will be subject to these rules. The government will additionally consult on the OTS recommendation to introduce a 'marketable security' into rules for taxing employment-related securities and on the proposal to introduce an employee shareholding vehicle. Construction Industry Scheme (CIS) - The government will consult in summer 2014 on options to improve the operation of the CIS for smaller businesses and to introduce mandatory on-line filing for contractors. Avoidance and evasion Upfront payments - users of disclosed tax avoidance schemes and schemes covered by the General Anti-Abuse Rule ("GAAR") will be required to pay tax upfront. High risk promoters - The government will provide HMRC with new powers to tackle non-cooperative promoters of tax avoidance schemes. These powers will include the ability to issue conduct notices, breaches of which will trigger enhanced information powers with large financial penalties for non-compliance. Marketed tax avoidance schemes - the government will legislate to provide that HMRC may issue a notice to the user of a tax avoidance scheme that they should settle their dispute with HMRC when the claimed tax effect has been defeated in other litigation. If the taxpayer does not settle, they risk a penalty and must make upfront payment of the tax in dispute. Disclosure of Tax Avoidance Schemes regime (DOTAS) - the government will consult on extending the existing "hallmarks", and strengthening HMRC's powers to take non-compliance. Avoidance schemes using charities - as announced in the Autumn Statement 2013, the government is consulting further on measures to deter the use of charities established for the purpose of tax avoidance. Compensating adjustments - as previously announced legislation will be introduced, with effect from 25 October 2013, to prevent abuse of the rules relating to compensating adjustments in the transfer pricing code. Employment intermediaries facilitating false self-employment - As announced at Autumn Statement 2013, the government will amend existing legislation to prevent both on-short and off-shore employment intermediaries being used to avoid employment taxes by disguising employment as self-employment, with effect from April 2014. Dual contracts - As announced at Autumn Statement 2013, the government will legislate to prevent high earning non-domiciled individuals from avoiding tax by artificially dividing the duties of one employment between the UK and overseas. Transfer of corporate profits - with effect from 19 March 2014, where profits are transferred between group companies as part of tax avoidance arrangements, the relevant company's profits will be taxed as if the transfer had not occurred. Direct Recovery of Debts - the government will strengthen HMRC's powers to recover tax debts directly from debtors' bank and building society accounts, including ISAs. This will focus on debtors who owe at least £1,000 and have been contacted multiple times by HMRC to pay. A minimum aggregate balance of £5,000 will be left across all accounts, including ISAs, after the debt is recovered. The government will consult on the implementation of this measure shortly after Budget 2014. VAT - reverse charge - secondary legislation will be introduced to prevent missing intra-community fraud in the wholesale gas and electricity sectors through a reverse charge. Other Community Amateur Sports Clubs ("CASCs") - as announced at Autumn Statement 2013, the government will legislate to allow tax relief for donations of money from companies to CASCs. Gambling - Bingo duty will be reduced to 10% and the duty on fixed odds betting terminals will be increased to 25%. Sporting events - secondary legislation will be introduced to enable income and corporation tax relief to be given in relation to major sporting events. Theatres - with effect from 1 September 2014, a new theatre tax relief will be introduced at 25% for qualifying touring productions and 20% for other qualifying productions. Film Production - as announced at Autumn Statement 2013, from April 2014, for small and large budget films, relief will be available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter. The minimum UK expenditure requirement will be reduced from 25% to 10% and the government will modernise the cultural test. Aggregate levy rates - the aggregate levy rate will remain at £2 per tonne in 2014-15. Landfill tax rates - from 1 April 2015, the standard and lower rates of landfill tax will increase in line with the RPI, rounded to the nearest 5 pence. Air passenger duty - the government will reform air passenger duty by abolishing bands C and D from April 2015. ]]>{85FEC2B2-E22B-48DE-AD0E-904795F93DE2}https://www.shoosmiths.co.uk/client-resources/legal-updates/mixed-partnerships-6930.aspxMixed partnerships: new rules from HMRC HMRC published draft legislation on 10 December 2013 to deal with perceived tax avoidance by partnerships. This article explores profit and loss allocations by partnerships, the special rules for alternative investment fund managers and the disposal of assets through partnerships, which lead to a tax advantage. Typically, these new rules are aimed at mixed partnerships, ie partnerships which consist of both individuals and corporates. The draft legislation indicates that the new measures will apply to partnership accounting years starting on or after 6 April 2014, with accounting periods which straddle that date being divided so that a new period of account is assumed to commence on 6 April 2014. Profit and loss allocation schemes A profit share allocated to a corporate partner may, under the draft legislation, be treated as being allocated to an individual if it is regarded as being excessive and it is reasonable to suppose that the individual partner has the 'power to enjoy' the whole or part of the profit attributable to the corporate partner. The draft legislation indicates that this will be the case where the profit share exceeds: the appropriate notional profit. This is calculated by reference to the commercial rate of interest on the capital contribution to the firm taking account of all the circumstances, less any return actually received in respect of the non-individual's capital contribution to the LLP that is not included in its profit share the arms-length rate for services that the non-individual supplies. This is a small mark-up on the costs incurred in providing the services An individual partner is treated as having power to enjoy the corporate partner's share if the individual partner is either connected with the corporate partner or satisfies one of the 'enjoyment conditions'. Enjoyment conditions are widely defined so, where these arrangements are in place, it will be difficult to show that an individual partner does not have power to enjoy the corporate partner's share. On the other side of the coin, where the legislation applies and an individual partner makes a loss in a trade or property business which arises wholly, partly, directly or indirectly in connection with relevant tax avoidance arrangements, no loss relief is available. All partnerships with a corporate member will therefore need to review their current arrangements urgently, especially where those arrangements are in place to exploit the allocation of profits and losses between individual and corporate partners. It is suggested that HMRC intends to apply these rules to partnerships consisting entirely of non-individual members if it appears that the structure has been set up to avoid higher rates of personal income tax. Special rules for alternative investment fund managers Where the mixed partnership is the manager of an alternative investment fund, an individual/ partnership can elect for his deferred profits to be taxable on the firm. The election must be made within six months of the end of the period of account which it affects. The firm will pay income tax on that income at 45%. If the profit ultimately vests with the partner who initially allocated it to the partnership, this is treated as taxable income of the partner in the relevant tax year, who then gets credit for the income tax paid by the partnership. Under the legislation as currently drafted, if the profit is allocated to anybody else, whether another individual or corporate member, there is no credit for the tax originally paid by the partnership. This effectively results in double taxation. Disposal of assets through partnership The final change relates to the disposal of an asset or a right to income by or through a partnership from a member of the partnership or connected person (transferor) to another member where the main purpose or one of the main purposes is to obtain a tax advantage in relation to income tax or corporation tax. Where the legislation applies the 'relevant amount' is taxable as income of the transferor. Conclusion It is clear, from the draft legislation, that HMRC has not made any fundamental changes to the principles set out in its consultation document. Partnerships are going to have to adapt to the new rules at fairly short notice. Tue, 11 Feb 2014 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ HMRC published draft legislation on 10 December 2013 to deal with perceived tax avoidance by partnerships. This article explores profit and loss allocations by partnerships, the special rules for alternative investment fund managers and the disposal of assets through partnerships, which lead to a tax advantage. Typically, these new rules are aimed at mixed partnerships, ie partnerships which consist of both individuals and corporates. The draft legislation indicates that the new measures will apply to partnership accounting years starting on or after 6 April 2014, with accounting periods which straddle that date being divided so that a new period of account is assumed to commence on 6 April 2014. Profit and loss allocation schemes A profit share allocated to a corporate partner may, under the draft legislation, be treated as being allocated to an individual if it is regarded as being excessive and it is reasonable to suppose that the individual partner has the 'power to enjoy' the whole or part of the profit attributable to the corporate partner. The draft legislation indicates that this will be the case where the profit share exceeds: the appropriate notional profit. This is calculated by reference to the commercial rate of interest on the capital contribution to the firm taking account of all the circumstances, less any return actually received in respect of the non-individual's capital contribution to the LLP that is not included in its profit share the arms-length rate for services that the non-individual supplies. This is a small mark-up on the costs incurred in providing the services An individual partner is treated as having power to enjoy the corporate partner's share if the individual partner is either connected with the corporate partner or satisfies one of the 'enjoyment conditions'. Enjoyment conditions are widely defined so, where these arrangements are in place, it will be difficult to show that an individual partner does not have power to enjoy the corporate partner's share. On the other side of the coin, where the legislation applies and an individual partner makes a loss in a trade or property business which arises wholly, partly, directly or indirectly in connection with relevant tax avoidance arrangements, no loss relief is available. All partnerships with a corporate member will therefore need to review their current arrangements urgently, especially where those arrangements are in place to exploit the allocation of profits and losses between individual and corporate partners. It is suggested that HMRC intends to apply these rules to partnerships consisting entirely of non-individual members if it appears that the structure has been set up to avoid higher rates of personal income tax. Special rules for alternative investment fund managers Where the mixed partnership is the manager of an alternative investment fund, an individual/ partnership can elect for his deferred profits to be taxable on the firm. The election must be made within six months of the end of the period of account which it affects. The firm will pay income tax on that income at 45%. If the profit ultimately vests with the partner who initially allocated it to the partnership, this is treated as taxable income of the partner in the relevant tax year, who then gets credit for the income tax paid by the partnership. Under the legislation as currently drafted, if the profit is allocated to anybody else, whether another individual or corporate member, there is no credit for the tax originally paid by the partnership. This effectively results in double taxation. Disposal of assets through partnership The final change relates to the disposal of an asset or a right to income by or through a partnership from a member of the partnership or connected person (transferor) to another member where the main purpose or one of the main purposes is to obtain a tax advantage in relation to income tax or corporation tax. Where the legislation applies the 'relevant amount' is taxable as income of the transferor. Conclusion It is clear, from the draft legislation, that HMRC has not made any fundamental changes to the principles set out in its consultation document. Partnerships are going to have to adapt to the new rules at fairly short notice. ]]>{29E30A8E-93E1-4DC0-8600-E7A429AFA60A}https://www.shoosmiths.co.uk/client-resources/legal-updates/limited-liability-partnerships-disguised-remuneration-6675.aspxLimited Liability Partnerships and disguised remuneration We commented in a previous article, issued on 2 December 2012, about HM Revenue and Customs (HMRC) proposals to tighten up the rules allowing members of an LLP to be treated as self-employed. Draft legislation and guidance from HMRC was issued on 10 December following on from the earlier consultation. This legislation will apply from 6 April 2014, but is not likely to be in final form until July 2014. Draft legislation As noted in our previous article (click here) members of an LLP are currently automatically deemed to be self-employed. As a result, a number of businesses have taken advantage of this presumption to make people, who in normal circumstances would be treated as employees, members of the LLP so as to save employers' National Insurance. As a result of the proposed legislation it will, in future, be possible to have both employed and self-employed members of an LLP. The draft legislation contains three conditions, at least one of which must be met by a member, in order to be self-employed. The conditions are: The amount of a member's entitlement to a, 'disguised salary' in the business must not exceed 80% of their 'reasonably expected' total profit share. In other words, at least 20% must be truly variable and dependent on the financial performance of the LLP The member must be able to demonstrate that they have significant influence over the direction and management of the LLP The member needs to demonstrate that they have sufficient capital invested in the business which is 'at risk'. Sufficient means at least 25% of the members deemed 'disguised salary' above. The contribution of a member is measured at the beginning of the 2014/15 tax year and at the beginning of each subsequent tax year. If during a tax year there is a change in the capital contribution or otherwise any change in circumstances which affect whether the capital contribution test is met, then it is necessary to determine whether the capital contribution test is met at that point The legislation also has its own mini anti-avoidance test, which applies to override any arrangements entered into for the purpose of avoiding the legislation. One positive outcome of the new legislation is that HMRC has dropped the original proposal to use the Employment Status manual as a test for determining whether a member was self-employed or not. Practical effects There is a fairly short lead-time within which affected LLPs are going to have to take decisions about how to deal with the implications of the new legislation. As the legislation commences with effect from 6 April 2014, those businesses with year-ends falling after 6 April are going to have to make adjustments to deal with the changes in the current accounting period. This will involve splitting the accounting period between the old and new rules. For those members who have been made members simply to take advantage of the saving in employer's National Insurance, there is unlikely to be much choice other than to accept the changes and be taxed accordingly. The decision is likely to be more complicated where there is a genuine level of profit or management participation, but not sufficient to satisfy the prescriptive requirements of the legislation. This leaves three choices: Increased participation in the management of the LLP. Unless the LLP is a relatively small organisation this is unlikely to be a realistic option since, in practice, most LLPs are run by a small number of members, with the majority of members having little or no input into the running of the LLP Increased risk on profit share. This will require the member to take a considerably larger risk in his profit sharing ratio. This requires a fundamental re-appraisal of the risks a member is willing to take The final option is to increase the capital contribution such a member makes. This may provide a welcome capital injection to the LLP and, depending on circumstances, may be the most straightforward option As noted above, affected LLPs have a relatively short time within which to adjust to the new rules. Mon, 13 Jan 2014 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ We commented in a previous article, issued on 2 December 2012, about HM Revenue and Customs (HMRC) proposals to tighten up the rules allowing members of an LLP to be treated as self-employed. Draft legislation and guidance from HMRC was issued on 10 December following on from the earlier consultation. This legislation will apply from 6 April 2014, but is not likely to be in final form until July 2014. Draft legislation As noted in our previous article (click here) members of an LLP are currently automatically deemed to be self-employed. As a result, a number of businesses have taken advantage of this presumption to make people, who in normal circumstances would be treated as employees, members of the LLP so as to save employers' National Insurance. As a result of the proposed legislation it will, in future, be possible to have both employed and self-employed members of an LLP. The draft legislation contains three conditions, at least one of which must be met by a member, in order to be self-employed. The conditions are: The amount of a member's entitlement to a, 'disguised salary' in the business must not exceed 80% of their 'reasonably expected' total profit share. In other words, at least 20% must be truly variable and dependent on the financial performance of the LLP The member must be able to demonstrate that they have significant influence over the direction and management of the LLP The member needs to demonstrate that they have sufficient capital invested in the business which is 'at risk'. Sufficient means at least 25% of the members deemed 'disguised salary' above. The contribution of a member is measured at the beginning of the 2014/15 tax year and at the beginning of each subsequent tax year. If during a tax year there is a change in the capital contribution or otherwise any change in circumstances which affect whether the capital contribution test is met, then it is necessary to determine whether the capital contribution test is met at that point The legislation also has its own mini anti-avoidance test, which applies to override any arrangements entered into for the purpose of avoiding the legislation. One positive outcome of the new legislation is that HMRC has dropped the original proposal to use the Employment Status manual as a test for determining whether a member was self-employed or not. Practical effects There is a fairly short lead-time within which affected LLPs are going to have to take decisions about how to deal with the implications of the new legislation. As the legislation commences with effect from 6 April 2014, those businesses with year-ends falling after 6 April are going to have to make adjustments to deal with the changes in the current accounting period. This will involve splitting the accounting period between the old and new rules. For those members who have been made members simply to take advantage of the saving in employer's National Insurance, there is unlikely to be much choice other than to accept the changes and be taxed accordingly. The decision is likely to be more complicated where there is a genuine level of profit or management participation, but not sufficient to satisfy the prescriptive requirements of the legislation. This leaves three choices: Increased participation in the management of the LLP. Unless the LLP is a relatively small organisation this is unlikely to be a realistic option since, in practice, most LLPs are run by a small number of members, with the majority of members having little or no input into the running of the LLP Increased risk on profit share. This will require the member to take a considerably larger risk in his profit sharing ratio. This requires a fundamental re-appraisal of the risks a member is willing to take The final option is to increase the capital contribution such a member makes. This may provide a welcome capital injection to the LLP and, depending on circumstances, may be the most straightforward option As noted above, affected LLPs have a relatively short time within which to adjust to the new rules. ]]>{AD0BD949-D23A-446C-A990-D24B79CDAC8A}https://www.shoosmiths.co.uk/client-resources/legal-updates/emi-options-changes-are-you-prepared-6644.aspxEMI options changes: Are you prepared? Buried in the raft of proposed legislation published by the Government last month are further details of some seemingly uninteresting and procedural changes to the way EMI options operate. However, if employers fail to comply with these changes, the tax benefits of EMI options, including those options already granted will be lost - with disastrous consequences. Why is this so important? Whilst it is very common for the Government to tinker with the way share option schemes work, the crucial point about these proposed changes is that they will apply to all EMI options, not just those granted from the dates that the changes have effect. What is being changed? The changes affect the way that HM Revenue &amp; Customs (HMRC) administers EMI options. From April 2014, an employer must register online any: already granted, but currently unexercised, EMI options any EMI options granted from that date New registration requirements are also being introduced in relation to any unapproved arrangements currently recorded on Form 42; and any CSOP, SAYE and SIP schemes (which fall outside the scope of this article). From April 2015, further changes are being introduced, including: the requirement to file all information returns online the application of automatic penalties for late filing notices to file and reminders will no longer be issued What should an employer do now? As well as taking further tax advice on the effect on their current option arrangements, employers should make sure they are registered for PAYE Online, part of HMRC's online service. This is because the Employment Related Securities (ERS) service will be part of PAYE Online. What happens if an employer fails to comply? If any EMI options are not registered by 6 July 2015, the employer will not be able to file online returns in relation to those options, and late filing penalties will apply. However, the most serious consequence is that any unregistered EMI options will lose their tax-advantaged status. Presumably, this means they will be treated in the same way as unapproved options, with disastrous consequences for any EMI option holders. Currently, it is possible to structure EMI options to take advantage of entrepreneurs' relief, meaning an individual only pays tax at 10% on any option gain. However, should EMI options lose their tax-advantaged status, then income tax at up to 45% will become payable, along with employee's national insurance of 2%. The employer will also suffer an employer's national insurance charge at 13.8% which, according to most EMI scheme rules, could also be passed on to the employee. So whilst it is the employer that has to comply with these new requirements, any individual holding EMI options should make enquiries now to ensure their employer is aware of the changes and will take appropriate action. Tue, 07 Jan 2014 00:00:00 Z<![CDATA[Tom Wilde ]]><![CDATA[ Buried in the raft of proposed legislation published by the Government last month are further details of some seemingly uninteresting and procedural changes to the way EMI options operate. However, if employers fail to comply with these changes, the tax benefits of EMI options, including those options already granted will be lost - with disastrous consequences. Why is this so important? Whilst it is very common for the Government to tinker with the way share option schemes work, the crucial point about these proposed changes is that they will apply to all EMI options, not just those granted from the dates that the changes have effect. What is being changed? The changes affect the way that HM Revenue &amp; Customs (HMRC) administers EMI options. From April 2014, an employer must register online any: already granted, but currently unexercised, EMI options any EMI options granted from that date New registration requirements are also being introduced in relation to any unapproved arrangements currently recorded on Form 42; and any CSOP, SAYE and SIP schemes (which fall outside the scope of this article). From April 2015, further changes are being introduced, including: the requirement to file all information returns online the application of automatic penalties for late filing notices to file and reminders will no longer be issued What should an employer do now? As well as taking further tax advice on the effect on their current option arrangements, employers should make sure they are registered for PAYE Online, part of HMRC's online service. This is because the Employment Related Securities (ERS) service will be part of PAYE Online. What happens if an employer fails to comply? If any EMI options are not registered by 6 July 2015, the employer will not be able to file online returns in relation to those options, and late filing penalties will apply. However, the most serious consequence is that any unregistered EMI options will lose their tax-advantaged status. Presumably, this means they will be treated in the same way as unapproved options, with disastrous consequences for any EMI option holders. Currently, it is possible to structure EMI options to take advantage of entrepreneurs' relief, meaning an individual only pays tax at 10% on any option gain. However, should EMI options lose their tax-advantaged status, then income tax at up to 45% will become payable, along with employee's national insurance of 2%. The employer will also suffer an employer's national insurance charge at 13.8% which, according to most EMI scheme rules, could also be passed on to the employee. So whilst it is the employer that has to comply with these new requirements, any individual holding EMI options should make enquiries now to ensure their employer is aware of the changes and will take appropriate action. ]]>{134CF012-DB5B-4316-BBAF-8DD185E16BA8}https://www.shoosmiths.co.uk/client-resources/legal-updates/autumn-statement-2013-tax-summary-6512.aspxAutumn Statement 2013: Tax summary The Chancellor George Osborne has delivered his Autumn Statement 2013. The following is a summary of the main tax points of interest with draft legislation enacting the proposed changes to be published on 10 December 2013: BUSINESS TAXES Corporation Tax - as previously announced, the main rate for corporation tax will fall from 23% to 21% from April 2014. It will reach 20% in 2015. The small profits rate remains at 20% meaning that from April 2015 the rates will be aligned. Employment Allowance - as announced in Budget 2013, a £2,000 Employment Allowance will be introduced from April 2014 to help businesses expand by reducing the costs of employment. Partnership review - the Government will take forward their proposals announced in consultations earlier this year to counter what they see as the use of partnerships and LLPs to disguise employment relationships and the allocation of business profits to corporate partners for tax reasons. Venture Capital Trusts (VCT): changes will be made to allow investors to subscribe for VCT shares via nominees from April 2014, investments that are conditionally linked to a VCT share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT, will not qualify for new tax relief there will also be further consultations on potential changes to VCT rules to address the use of converted share premium accounts to return capital to investors Corporation Tax - associated companies - from April 2015 when the corporation tax rates align, the rules on associated companies will be replaced by a simpler set of rules based upon 51% group membership. Close Companies - loans to participators - the Government does not intend to make any further changes to the rules relating to the taxation of loans to participators in a close company. Corporation Tax - amending loss relief provisions - the rules restricting the availability of relief for corporation tax trading losses where a company changes ownership will be eased in relation to investment companies, and also to allow the insertion of a holding company into a group structure. Bank Levy - from 1 January 2014, the rate of the bank levy will be increased to 0.156% and the design of the bank levy will be changed to have the effect of widening the tax base. PERSONAL TAXES Capital Gains (CGT) - annual exemption - as previously announced the annual exemption for 2014-15 will be £11,000. For 2015-16 and thereafter, the annual exemption shall be £11,100. The exemption for trustees will be £5,000 and £5,500 respectively. Income Tax - personal allowance: as previously announced, the personal allowance will increase from April 2014 to £10,000. Income Tax - married couples: from 2015-16, married couples and civil partners will be able to transfer £1,000 of their income tax personal allowance to their spouse where neither is a higher or additional rate tax payer. The transferable amount will be uprated in proportion to the personal allowance. Income Tax - relief for qualifying loan interest - from April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies, will be extended to investments in such companies which are resident throughout the European Economic Area. ISA - annual subscription limits - the 2014-15 ISA limit will be increased to £11,880 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840. Inheritance Tax (IHT) - simplification of trusts - the filing and payment dates for IHT relevant property trust charges will be simplified. Income which arises in such trusts and is not distributed for five years will form part of the trust capital when calculating the 10-year anniversary charge. Life Annuities - following consultation the relief for interest on loans taken out to purchase life annuities, by people aged 65 or over before 1999, shall not be withdrawn. Vulnerable Beneficiary trusts - from 5 December 2013, the CGT uplift provisions that apply on the death of a vulnerable beneficiary will be extended. From 2014-15, the range of trusts that qualify for special income tax, CGT and IHT will also be extended. EMPLOYMENT Employee ownership - following consultation, three new tax reliefs will be introduced: from April 2014, disposals of shares that result in a controlling interest in a company being held by an employee ownership trust will be relieved from CGT provided certain conditions are met, transfers of shares and other assets into employee ownership trusts will be exempt from inheritance tax from October 2014, where employee-owned companies controlled by an employee ownership trust make bonus payments to their employees, the bonus payments will be exempt from income tax up to a cap of £3,600 per annum Employer-funded occupational health treatments - as announced in Budget 2013, there will be a tax exemption for amounts (up to £500) paid by employers for medical treatment for employees. Dual contracts - rules will be introduced to prevent high earning, non-domiciled individuals from avoiding tax by dividing their employment between the UK and overseas. From April 2014, where a comparable level of tax is not payable overseas, UK tax will be levied on the full amount of employment income. Share Incentive Plans (SIP) and Save as You Earn Limits (SAYE) - from April 2014, the annual limit for SIPs will increase to £3,600-per-year for free shares, and to £1,800-per-year for partnership shares. The monthly limit for SAYE arrangements will increase from £250 to £500. Employment intermediaries - facilitating false self-employment - from April 2014, changes will be made to prevent employment intermediaries from disguising employment as self-employment. National Insurance - from April 2015, employer's national insurance contributions (NICs) will be abolished for under-21 year olds on earnings up to £813-per-week. National Insurance - from October 2015, there will be a new class of voluntary NICs to give pensioners who reach State Pension age, before 6 April 2016, an opportunity to top up their Additional Pension records. National Insurance - self employed persons - following previous consultation a simpler NICs process for self employed persons will continue to be developed. PROPERTY Capital Gains - non-residents - from April 2015, CGT will be introduced on future gains made by non-residents disposing of UK residential property. How to implement this will be consulted on in early 2014. Capital Gains - private residence relief - from April 2014, the final period exemption will be reduced from 36 months to 18 months. SDLT - charities relief - in line with recent case law, legislation will be implemented from Royal Assent of Finance Bill 2014 to make it clear that partial relief from SDLT shall be available where a charity and a non-charity purchase property jointly. Relief will be available on the proportion of the purchase price funded by the charity. Business Rates - indexation - the RPI increase in business rates will be capped at 2% in 2014-15. Business Rates - reoccupation relief - a temporary reoccupation relief will be introduced which will grant a 50% discount from business rates for 18 months for new occupants of retail premises which occupy property in 2014-15 and 2015-16 which has previously been empty for at least a year. Business Rates - bills - from 1 April 2014, new legislation will allow business rates to be spread over 12 months (rather than 10 months as currently) Business Rates - retail premises - a discount of up to £1,000 will be introduced against business rates bills for retail premises (including pubs, cafes, restaurants and charity shops) with a rateable value of up to £50,000 (up to the state aid limits) in 2014-15 and 2015-16. Council Tax - from April 2014, there will be a national Council Tax discount of 50% for property annexes. Small Business Rate Relief - the doubling of the Small Business Rate Relief (SBBR) will be further extended to April 2015. Furthermore, from April 2014 the SBBR criteria will be amended to allow businesses in receipt of SBBR to keep it for one year when they take on additional property that would currently cause them to lose SBBR. Business Premises Renovation Allowance - with effect from April 2014 and following consultation earlier this year the scheme will be simplified to make it more certain in its application and reduce the risk of exploitation. HMRC AND TAX ADMINISTRATION IHT - during 2015-16, an HMRC online service for IHT will be introduced. Simplifying the tax system - the Government: has asked the Office of Tax Simplification (OTS) to carry out a review as to what can be done to improve the competitiveness of UK tax administration will implement a further nine 'Quick Wins' identified by the OTS in relation to employee benefits and expenses by the end of January 2014 will implement a number of simplifications suggested by the OTS in relation to unapproved option schemes OTHER Community Amateur Sports Clubs (CASCs) - from April 2014, donations of money from companies to CASCs will be eligible for corporate Gift Aid. Film Production - from April 2014, for small and large budget films (subject to state aid clearance), relief will be available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter. The minimum UK expenditure requirement will be reduced from 25% to 10%. Fuel Duty - the proposed fuel duty increase due to take effect on 1 September 2014 will be cancelled. Social Organisations - from April 2014, there will be a new social investment tax relief to encourage individuals to invest via equity and debt instruments into social organisations. Organisations which are charities, community interest companies or community benefit societies will be eligible. There will also be a tax relief on investment in social impact bonds. Theatres - a formal consultation will be launched in early 2014 that considers a limited tax relief, from April 2015, for commercial theatre productions and a targeted tax relief for theatres investing in new works or touring productions to regional theatres. AVOIDANCE AND EVASION Accelerated payment - new rules will be introduced, known as 'pay now' notices, requiring taxpayers who rely on tax avoidance schemes, which have already been defeated in the courts, to pay the tax due immediately, rather than waiting for their own dispute to be concluded. Penalties - following a consultation on proposals announced at Budget 2013, the Government will introduce new powers to require taxpayers to amend their tax returns where they have relied on a tax avoidance scheme, and that tax avoidance scheme has been defeated in another party's litigation. The Government will also introduce penalties for taxpayers who pursue litigation in relation to the same scheme and are also unsuccessful. Avoidance schemes - high-risk promoters - following a consultation, the Government will introduce a new information disclosure and penalty regime for high-risk promoters of tax avoidance schemes. Compensating adjustments - as announced on 25 October 2013, new legislation will be introduced effective from that date to prevent perceived abuses of the compensating adjustments provisions in the transfer pricing code by partnerships with service companies. Corporate debt and derivative contracts - new provisions will be introduced to enhance existing anti-avoidance legislation. New rules will aim to prevent abuse of the 'bond fund' rules. Legislation will also be introduced in relation to the taxation of corporate partners where loan relationships and derivatives are held by a partnership. Double taxation relief - from 5 December 2013, two loopholes will be closed to reinforce the UK's double taxation relief policy that relief should only be available where a person has been subject to double taxation once in the UK and once abroad. Offshore evasion strategy - at Budget 2014, HM Revenue &amp; Customs will consult on enhanced sanctions to deter and to penalise persons with money hidden overseas. The Government will also expand the network of HMRC officers abroad to reduce the threat of smuggling, fraud and fiscal crime. Mon, 09 Dec 2013 00:00:00 Z<![CDATA[Kate Featherstone Tom Wilde ]]><![CDATA[ The Chancellor George Osborne has delivered his Autumn Statement 2013. The following is a summary of the main tax points of interest with draft legislation enacting the proposed changes to be published on 10 December 2013: BUSINESS TAXES Corporation Tax - as previously announced, the main rate for corporation tax will fall from 23% to 21% from April 2014. It will reach 20% in 2015. The small profits rate remains at 20% meaning that from April 2015 the rates will be aligned. Employment Allowance - as announced in Budget 2013, a £2,000 Employment Allowance will be introduced from April 2014 to help businesses expand by reducing the costs of employment. Partnership review - the Government will take forward their proposals announced in consultations earlier this year to counter what they see as the use of partnerships and LLPs to disguise employment relationships and the allocation of business profits to corporate partners for tax reasons. Venture Capital Trusts (VCT): changes will be made to allow investors to subscribe for VCT shares via nominees from April 2014, investments that are conditionally linked to a VCT share buy-back, or that have been made within 6 months of a disposal of shares in the same VCT, will not qualify for new tax relief there will also be further consultations on potential changes to VCT rules to address the use of converted share premium accounts to return capital to investors Corporation Tax - associated companies - from April 2015 when the corporation tax rates align, the rules on associated companies will be replaced by a simpler set of rules based upon 51% group membership. Close Companies - loans to participators - the Government does not intend to make any further changes to the rules relating to the taxation of loans to participators in a close company. Corporation Tax - amending loss relief provisions - the rules restricting the availability of relief for corporation tax trading losses where a company changes ownership will be eased in relation to investment companies, and also to allow the insertion of a holding company into a group structure. Bank Levy - from 1 January 2014, the rate of the bank levy will be increased to 0.156% and the design of the bank levy will be changed to have the effect of widening the tax base. PERSONAL TAXES Capital Gains (CGT) - annual exemption - as previously announced the annual exemption for 2014-15 will be £11,000. For 2015-16 and thereafter, the annual exemption shall be £11,100. The exemption for trustees will be £5,000 and £5,500 respectively. Income Tax - personal allowance: as previously announced, the personal allowance will increase from April 2014 to £10,000. Income Tax - married couples: from 2015-16, married couples and civil partners will be able to transfer £1,000 of their income tax personal allowance to their spouse where neither is a higher or additional rate tax payer. The transferable amount will be uprated in proportion to the personal allowance. Income Tax - relief for qualifying loan interest - from April 2014, the income tax relief for interest paid on loans to invest in close companies and employee-controlled companies, will be extended to investments in such companies which are resident throughout the European Economic Area. ISA - annual subscription limits - the 2014-15 ISA limit will be increased to £11,880 (half of which can be saved in a cash ISA). The Junior ISA and Child Trust Fund limits will both be increased to £3,840. Inheritance Tax (IHT) - simplification of trusts - the filing and payment dates for IHT relevant property trust charges will be simplified. Income which arises in such trusts and is not distributed for five years will form part of the trust capital when calculating the 10-year anniversary charge. Life Annuities - following consultation the relief for interest on loans taken out to purchase life annuities, by people aged 65 or over before 1999, shall not be withdrawn. Vulnerable Beneficiary trusts - from 5 December 2013, the CGT uplift provisions that apply on the death of a vulnerable beneficiary will be extended. From 2014-15, the range of trusts that qualify for special income tax, CGT and IHT will also be extended. EMPLOYMENT Employee ownership - following consultation, three new tax reliefs will be introduced: from April 2014, disposals of shares that result in a controlling interest in a company being held by an employee ownership trust will be relieved from CGT provided certain conditions are met, transfers of shares and other assets into employee ownership trusts will be exempt from inheritance tax from October 2014, where employee-owned companies controlled by an employee ownership trust make bonus payments to their employees, the bonus payments will be exempt from income tax up to a cap of £3,600 per annum Employer-funded occupational health treatments - as announced in Budget 2013, there will be a tax exemption for amounts (up to £500) paid by employers for medical treatment for employees. Dual contracts - rules will be introduced to prevent high earning, non-domiciled individuals from avoiding tax by dividing their employment between the UK and overseas. From April 2014, where a comparable level of tax is not payable overseas, UK tax will be levied on the full amount of employment income. Share Incentive Plans (SIP) and Save as You Earn Limits (SAYE) - from April 2014, the annual limit for SIPs will increase to £3,600-per-year for free shares, and to £1,800-per-year for partnership shares. The monthly limit for SAYE arrangements will increase from £250 to £500. Employment intermediaries - facilitating false self-employment - from April 2014, changes will be made to prevent employment intermediaries from disguising employment as self-employment. National Insurance - from April 2015, employer's national insurance contributions (NICs) will be abolished for under-21 year olds on earnings up to £813-per-week. National Insurance - from October 2015, there will be a new class of voluntary NICs to give pensioners who reach State Pension age, before 6 April 2016, an opportunity to top up their Additional Pension records. National Insurance - self employed persons - following previous consultation a simpler NICs process for self employed persons will continue to be developed. PROPERTY Capital Gains - non-residents - from April 2015, CGT will be introduced on future gains made by non-residents disposing of UK residential property. How to implement this will be consulted on in early 2014. Capital Gains - private residence relief - from April 2014, the final period exemption will be reduced from 36 months to 18 months. SDLT - charities relief - in line with recent case law, legislation will be implemented from Royal Assent of Finance Bill 2014 to make it clear that partial relief from SDLT shall be available where a charity and a non-charity purchase property jointly. Relief will be available on the proportion of the purchase price funded by the charity. Business Rates - indexation - the RPI increase in business rates will be capped at 2% in 2014-15. Business Rates - reoccupation relief - a temporary reoccupation relief will be introduced which will grant a 50% discount from business rates for 18 months for new occupants of retail premises which occupy property in 2014-15 and 2015-16 which has previously been empty for at least a year. Business Rates - bills - from 1 April 2014, new legislation will allow business rates to be spread over 12 months (rather than 10 months as currently) Business Rates - retail premises - a discount of up to £1,000 will be introduced against business rates bills for retail premises (including pubs, cafes, restaurants and charity shops) with a rateable value of up to £50,000 (up to the state aid limits) in 2014-15 and 2015-16. Council Tax - from April 2014, there will be a national Council Tax discount of 50% for property annexes. Small Business Rate Relief - the doubling of the Small Business Rate Relief (SBBR) will be further extended to April 2015. Furthermore, from April 2014 the SBBR criteria will be amended to allow businesses in receipt of SBBR to keep it for one year when they take on additional property that would currently cause them to lose SBBR. Business Premises Renovation Allowance - with effect from April 2014 and following consultation earlier this year the scheme will be simplified to make it more certain in its application and reduce the risk of exploitation. HMRC AND TAX ADMINISTRATION IHT - during 2015-16, an HMRC online service for IHT will be introduced. Simplifying the tax system - the Government: has asked the Office of Tax Simplification (OTS) to carry out a review as to what can be done to improve the competitiveness of UK tax administration will implement a further nine 'Quick Wins' identified by the OTS in relation to employee benefits and expenses by the end of January 2014 will implement a number of simplifications suggested by the OTS in relation to unapproved option schemes OTHER Community Amateur Sports Clubs (CASCs) - from April 2014, donations of money from companies to CASCs will be eligible for corporate Gift Aid. Film Production - from April 2014, for small and large budget films (subject to state aid clearance), relief will be available at 25% on the first £20 million of qualifying production expenditure and 20% thereafter. The minimum UK expenditure requirement will be reduced from 25% to 10%. Fuel Duty - the proposed fuel duty increase due to take effect on 1 September 2014 will be cancelled. Social Organisations - from April 2014, there will be a new social investment tax relief to encourage individuals to invest via equity and debt instruments into social organisations. Organisations which are charities, community interest companies or community benefit societies will be eligible. There will also be a tax relief on investment in social impact bonds. Theatres - a formal consultation will be launched in early 2014 that considers a limited tax relief, from April 2015, for commercial theatre productions and a targeted tax relief for theatres investing in new works or touring productions to regional theatres. AVOIDANCE AND EVASION Accelerated payment - new rules will be introduced, known as 'pay now' notices, requiring taxpayers who rely on tax avoidance schemes, which have already been defeated in the courts, to pay the tax due immediately, rather than waiting for their own dispute to be concluded. Penalties - following a consultation on proposals announced at Budget 2013, the Government will introduce new powers to require taxpayers to amend their tax returns where they have relied on a tax avoidance scheme, and that tax avoidance scheme has been defeated in another party's litigation. The Government will also introduce penalties for taxpayers who pursue litigation in relation to the same scheme and are also unsuccessful. Avoidance schemes - high-risk promoters - following a consultation, the Government will introduce a new information disclosure and penalty regime for high-risk promoters of tax avoidance schemes. Compensating adjustments - as announced on 25 October 2013, new legislation will be introduced effective from that date to prevent perceived abuses of the compensating adjustments provisions in the transfer pricing code by partnerships with service companies. Corporate debt and derivative contracts - new provisions will be introduced to enhance existing anti-avoidance legislation. New rules will aim to prevent abuse of the 'bond fund' rules. Legislation will also be introduced in relation to the taxation of corporate partners where loan relationships and derivatives are held by a partnership. Double taxation relief - from 5 December 2013, two loopholes will be closed to reinforce the UK's double taxation relief policy that relief should only be available where a person has been subject to double taxation once in the UK and once abroad. Offshore evasion strategy - at Budget 2014, HM Revenue &amp; Customs will consult on enhanced sanctions to deter and to penalise persons with money hidden overseas. The Government will also expand the network of HMRC officers abroad to reduce the threat of smuggling, fraud and fiscal crime. ]]>{B7C9444B-3A04-49DD-AD92-3AA47F7A4D59}https://www.shoosmiths.co.uk/client-resources/legal-updates/partnerships-under-pressure-part-2-6478.aspxPartnerships under pressure: Part 2 This is the second of two looks at new measures being introduced by the Revenue to crack down on what it perceives as the use of partnerships for tax avoidance purposes. In all cases, they counteract what have been reasonably standard and long-term planning measures. Here we look at the proposed new measures. Disguised remuneration This is specifically targeted at Limited Liability Partnerships (LLPs). New legislation will remove the presumption that all members of a LLP are self-employed. The presumption means that salaried partners, fixed-profit partners and persons who would, under normal tests, be regarded as employees are treated as self-employed. The proposed legislation will remove this presumption and replace it with a series of factors to be taken into account to determine whether a member is genuinely self-employed or not. There are two sets of tests. The first applies the tests set out in the Employment Status Manual to determine whether someone is an employee or self-employed. If these are inconclusive there is then an economic substance test which seeks to determine whether the individual has a real economic risk in the business. Whilst it may be possible to satisfy the first by a combination of drafting and actual working conditions, the second is likely to be more difficult to satisfy in practice. Profit and Loss Allocation Schemes The legislation is aimed at mixed partnerships; ie partnerships which have one or more individual and corporate partners. The perceived mischiefs are: Profits being allocated to corporates which are taxed at the lower corporation tax rate, rather than the higher income tax rate, where there is a connection between the individual and the corporate. Typically, this would involve the individual being able to access the profits in the corporate at a lower rate later on, for example by selling shares in the corporate and claiming entrepreneurs' relief. Losses being allocated to individuals who are relieved at a higher rate than if the losses were allocated to the corporate member. Partnership members with differing tax attributes. An example is where a member (transferee member) contributes capital to the partnership or makes a payment to another member (transferor member) in return for receiving a new or increased share of the profits. The transferor member is either not taxed at all or taxed at a much lower rate than the transferee member, whether as a result of its residence or tax status. In the case of profit allocations, part of the profits allocated to corporate members will be reallocated to members within the charge to income tax on a just and reasonable basis. Where loss schemes are involved, the proposal is that no tax relief will be given for the advantaged person's partnership loss for the relevant period. In the case of partnerships with different tax attributes the payment received will be treated for tax purposes as income of the transferor member. Conclusion It seems clear that partnerships are going to have to review carefully any arrangements that potentially fall within these schemes. The draft legislation is being published with the Autumn Statement, in early December, at which point it should be possible to determine exactly how the legislation will impact on individual partnerships. Mon, 02 Dec 2013 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ This is the second of two looks at new measures being introduced by the Revenue to crack down on what it perceives as the use of partnerships for tax avoidance purposes. In all cases, they counteract what have been reasonably standard and long-term planning measures. Here we look at the proposed new measures. Disguised remuneration This is specifically targeted at Limited Liability Partnerships (LLPs). New legislation will remove the presumption that all members of a LLP are self-employed. The presumption means that salaried partners, fixed-profit partners and persons who would, under normal tests, be regarded as employees are treated as self-employed. The proposed legislation will remove this presumption and replace it with a series of factors to be taken into account to determine whether a member is genuinely self-employed or not. There are two sets of tests. The first applies the tests set out in the Employment Status Manual to determine whether someone is an employee or self-employed. If these are inconclusive there is then an economic substance test which seeks to determine whether the individual has a real economic risk in the business. Whilst it may be possible to satisfy the first by a combination of drafting and actual working conditions, the second is likely to be more difficult to satisfy in practice. Profit and Loss Allocation Schemes The legislation is aimed at mixed partnerships; ie partnerships which have one or more individual and corporate partners. The perceived mischiefs are: Profits being allocated to corporates which are taxed at the lower corporation tax rate, rather than the higher income tax rate, where there is a connection between the individual and the corporate. Typically, this would involve the individual being able to access the profits in the corporate at a lower rate later on, for example by selling shares in the corporate and claiming entrepreneurs' relief. Losses being allocated to individuals who are relieved at a higher rate than if the losses were allocated to the corporate member. Partnership members with differing tax attributes. An example is where a member (transferee member) contributes capital to the partnership or makes a payment to another member (transferor member) in return for receiving a new or increased share of the profits. The transferor member is either not taxed at all or taxed at a much lower rate than the transferee member, whether as a result of its residence or tax status. In the case of profit allocations, part of the profits allocated to corporate members will be reallocated to members within the charge to income tax on a just and reasonable basis. Where loss schemes are involved, the proposal is that no tax relief will be given for the advantaged person's partnership loss for the relevant period. In the case of partnerships with different tax attributes the payment received will be treated for tax purposes as income of the transferor member. Conclusion It seems clear that partnerships are going to have to review carefully any arrangements that potentially fall within these schemes. The draft legislation is being published with the Autumn Statement, in early December, at which point it should be possible to determine exactly how the legislation will impact on individual partnerships. ]]>{25B81A18-5459-49F6-B33C-A08B82EC8829}https://www.shoosmiths.co.uk/client-resources/legal-updates/partnerships-under-pressure-part-1-6459.aspxPartnerships under pressure: Part 1 The Revenue has announced a number of measures - and, for the arrangements covered by this article has already implemented the measure - to crack down on what it perceives as the use of partnerships for tax avoidance purposes. In all cases, they counteract what have been reasonably standard and long-term planning measures. This is the first of a two-part look at the new measures. Transfer pricing arrangements With effect from 25 October 2013, two specific arrangements have been blocked: Many large partnerships have set up a service company to employ their staff and provide facilities. The services provided by the service company to the partnership are charged at cost. The transfer pricing legislation deems that the services are provided at market value by the service company to the partnership, typically at a 5% mark-up to cost. This means the company is deemed to receive taxable income (taxed at 23% currently), but the partners obtain a deduction for this adjustment, saving tax at up to 45%. As this is a tax only adjustment, no change is made to the actual payments between the parties, so the partners only pay original cost while obtaining a greater tax deduction. Whilst the transfer pricing adjustment applies automatically to large businesses, it is possible for small and medium sized entities to elect into it, thus also benefitting from the tax advantage. The second arrangement is often found in private equity transactions that are excessively leveraged with debt when compared to their equity. Due to the high level of debt, the legislation restricts the interest deductible on these loans in the hands of the company under the transfer pricing legislation, thus increasing the company's taxable profits. However, the individual making the loan can claim a compensating adjustment for the amount described and can often receive the interest payments on these loans free from the income tax charges of up to 45%. In effect, this is an additional equity. For the service company arrangements, the new legislation provides for a one-way adjustment so that the service company pays corporation tax on the transfer pricing adjustment with no corresponding deduction in the partnership. The legislation does provide a let-out: where the correct economic price is charged, no transfer pricing adjustment will be made. The upshot is that partnerships that wish to avoid the new charge will have to charge and pay the correct economic price. For private equity type arrangements, the transfer pricing adjustment will be taxable on the individual. This may lead to some instances of double taxation. The income treated as arising in the individual's hands is characterised as a dividend, so it will be taxable at rates up to 37.5%. In addition, where the interest is accrued but unpaid, no charge will arise until the interest is paid. It should be noted that individuals affected will only have to apply the new rules from 25 October 2013. For companies where the accounting period spans 25 October it will be necessary to time apportion the transfer pricing or interest adjustment. Conclusion This new measure is likely to mean that many partnerships and overly leveraged companies will have to review their arrangements in order to avoid falling within the new provisions. Given the very short lead time in which these changes were introduced this is likely to mean that, in practice, many businesses will not have had time to consider what changes should be made and then to implement them. This is particularly the case where it is necessary to obtain consents from third parties, which is likely to be the case in many private equity type arrangements. Wed, 27 Nov 2013 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ The Revenue has announced a number of measures - and, for the arrangements covered by this article has already implemented the measure - to crack down on what it perceives as the use of partnerships for tax avoidance purposes. In all cases, they counteract what have been reasonably standard and long-term planning measures. This is the first of a two-part look at the new measures. Transfer pricing arrangements With effect from 25 October 2013, two specific arrangements have been blocked: Many large partnerships have set up a service company to employ their staff and provide facilities. The services provided by the service company to the partnership are charged at cost. The transfer pricing legislation deems that the services are provided at market value by the service company to the partnership, typically at a 5% mark-up to cost. This means the company is deemed to receive taxable income (taxed at 23% currently), but the partners obtain a deduction for this adjustment, saving tax at up to 45%. As this is a tax only adjustment, no change is made to the actual payments between the parties, so the partners only pay original cost while obtaining a greater tax deduction. Whilst the transfer pricing adjustment applies automatically to large businesses, it is possible for small and medium sized entities to elect into it, thus also benefitting from the tax advantage. The second arrangement is often found in private equity transactions that are excessively leveraged with debt when compared to their equity. Due to the high level of debt, the legislation restricts the interest deductible on these loans in the hands of the company under the transfer pricing legislation, thus increasing the company's taxable profits. However, the individual making the loan can claim a compensating adjustment for the amount described and can often receive the interest payments on these loans free from the income tax charges of up to 45%. In effect, this is an additional equity. For the service company arrangements, the new legislation provides for a one-way adjustment so that the service company pays corporation tax on the transfer pricing adjustment with no corresponding deduction in the partnership. The legislation does provide a let-out: where the correct economic price is charged, no transfer pricing adjustment will be made. The upshot is that partnerships that wish to avoid the new charge will have to charge and pay the correct economic price. For private equity type arrangements, the transfer pricing adjustment will be taxable on the individual. This may lead to some instances of double taxation. The income treated as arising in the individual's hands is characterised as a dividend, so it will be taxable at rates up to 37.5%. In addition, where the interest is accrued but unpaid, no charge will arise until the interest is paid. It should be noted that individuals affected will only have to apply the new rules from 25 October 2013. For companies where the accounting period spans 25 October it will be necessary to time apportion the transfer pricing or interest adjustment. Conclusion This new measure is likely to mean that many partnerships and overly leveraged companies will have to review their arrangements in order to avoid falling within the new provisions. Given the very short lead time in which these changes were introduced this is likely to mean that, in practice, many businesses will not have had time to consider what changes should be made and then to implement them. This is particularly the case where it is necessary to obtain consents from third parties, which is likely to be the case in many private equity type arrangements. ]]>{20AEC750-FFB1-4E23-8588-916D48A4B3D5}https://www.shoosmiths.co.uk/client-resources/legal-updates/shares-for-rights-scheme-6255.aspxShares for Rights Scheme We have published a number of articles on the introduction of the new "employee shareholder" legislation, colloquially referred to as the "shares for rights" scheme. Our most recent article (click here) sets out the detailed provisions applying to the new scheme. Implications As we commented at the time the proposals were first mooted, the main beneficiaries of the new scheme are likely to be found in private equity-backed and privately owned companies. Not only are the tax breaks very generous but, particularly in start-ups, the individuals concerned are likely to be less risk averse and less concerned about the loss of some employment protection rights. The new employee shareholder legislation provides an additional method whereby a company can incentivise its employees in a tax efficient manner. These methods are summarised briefly below: the first is simply to issue shares to employees. Providing the shares are issued before the company has any value, the shares can be issued at a low price. Any increase in value should then only be subject to capital gains tax - possibly at 10% if the requirements for entrepreneurs' relief are met and provided the employee signs an election if the shares constitute restricted securities (ie, if they are subject to certain restrictions which reduce their market value). One of the main requirements for entrepreneurs' relief is that the employee has 5% or more of the company's share capital. Frequently, this will not be satisfied, in which case a company could consider issuing shares under the EMI share option scheme the EMI share option scheme is a scheme whereby a company can issue options worth up to £250,000 as at the date of grant. Provided the option price is market value as at the date of grant, there is no income tax or national insurance either at the time of the grant or on exercise of the option. Capital gains tax is payable on the sale of the shares. The notable difference with shares being issued is to disapply the normal requirement that the employee has to hold 5% or more shares, which means that shares disposed of on exercise of an EMI option can benefit from entrepreneurs' relief the final alternative is to issue employee shareholder shares. The main benefit of this scheme is that shares with an initial value of between £2,000 and £50,000 can be issued and there is no capital gains tax on disposal. The first £2,000 of shares awarded are also free from income tax and national insurance. There is no reason why they cannot be issued in addition to shares issued under the above described arrangements. In appropriate circumstances they offer an additional valuable tool in the tax-planner's arsenal Conclusion A recent article in the Financial Times reported that Whitworths, a private equity-backed company, had offered managers shares for rights worth up to £50,000 each. This has already generated adverse comment from both Labour and the Liberal Democrats. Whilst it is unlikely there will be much change in the short-term, the next election is scheduled for 2015 and depending on the nature of the new government it may well be that the scheme has a fairly short "shelf life". However, given the Government backing the scheme has received to date, it is unlikely to suffer the same fate of other tax structures and be subject to retrospective legislation. Mon, 21 Oct 2013 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ We have published a number of articles on the introduction of the new "employee shareholder" legislation, colloquially referred to as the "shares for rights" scheme. Our most recent article (click here) sets out the detailed provisions applying to the new scheme. Implications As we commented at the time the proposals were first mooted, the main beneficiaries of the new scheme are likely to be found in private equity-backed and privately owned companies. Not only are the tax breaks very generous but, particularly in start-ups, the individuals concerned are likely to be less risk averse and less concerned about the loss of some employment protection rights. The new employee shareholder legislation provides an additional method whereby a company can incentivise its employees in a tax efficient manner. These methods are summarised briefly below: the first is simply to issue shares to employees. Providing the shares are issued before the company has any value, the shares can be issued at a low price. Any increase in value should then only be subject to capital gains tax - possibly at 10% if the requirements for entrepreneurs' relief are met and provided the employee signs an election if the shares constitute restricted securities (ie, if they are subject to certain restrictions which reduce their market value). One of the main requirements for entrepreneurs' relief is that the employee has 5% or more of the company's share capital. Frequently, this will not be satisfied, in which case a company could consider issuing shares under the EMI share option scheme the EMI share option scheme is a scheme whereby a company can issue options worth up to £250,000 as at the date of grant. Provided the option price is market value as at the date of grant, there is no income tax or national insurance either at the time of the grant or on exercise of the option. Capital gains tax is payable on the sale of the shares. The notable difference with shares being issued is to disapply the normal requirement that the employee has to hold 5% or more shares, which means that shares disposed of on exercise of an EMI option can benefit from entrepreneurs' relief the final alternative is to issue employee shareholder shares. The main benefit of this scheme is that shares with an initial value of between £2,000 and £50,000 can be issued and there is no capital gains tax on disposal. The first £2,000 of shares awarded are also free from income tax and national insurance. There is no reason why they cannot be issued in addition to shares issued under the above described arrangements. In appropriate circumstances they offer an additional valuable tool in the tax-planner's arsenal Conclusion A recent article in the Financial Times reported that Whitworths, a private equity-backed company, had offered managers shares for rights worth up to £50,000 each. This has already generated adverse comment from both Labour and the Liberal Democrats. Whilst it is unlikely there will be much change in the short-term, the next election is scheduled for 2015 and depending on the nature of the new government it may well be that the scheme has a fairly short "shelf life". However, given the Government backing the scheme has received to date, it is unlikely to suffer the same fate of other tax structures and be subject to retrospective legislation. ]]>{E535CC12-3E0D-41E7-ADD0-652AFF885A92}https://www.shoosmiths.co.uk/client-resources/legal-updates/stamp-duty-land-tax-and-group-relief-6016.aspxStamp Duty Land Tax and group relief HMRC recently clarified how it applies the anti-avoidance rule in the context of intra-group asset transfers following corporate acquisitions. Such transactions are relatively common in the property arena because of the Stamp Duty Land Tax (SDLT) saving involved. Background The legislation provides for a number of restrictions on the availability of group relief in SDLT transactions. One of the restrictions is that group relief is not available if the transaction is not effected for bona fide commercial reasons or the transaction forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax ("bona fide test"). "Tax" includes SDLT, stamp duty, income tax, corporation tax and capital gains tax. HMRC has issued guidance in the form of a list of transactions where group relief would not be denied, which are set out in the HMRC SDLT manual at paragraph 23040. This list provides examples of where, although a tax advantage might be obtained by the purchaser's group, SDLT group relief will not be denied subject to the overriding caveat that "the transactions do not form part of any larger scheme or arrangement which might have tax consequences". As well as the restriction mentioned above, it is also necessary to consider whether the steps taken fall into the targeted anti-avoidance provisions of sections 75A-75C Finance Act 2003. HMRC seems to accept that deciding to sell shares rather than land so as to pay less tax or SDLT represents a straightforward legislative choice and is not, of itself, objectionable in its guidance on the General Anti-Abuse Rule. Further HMRC guidance HMRC Stamp Taxes has now confirmed the following, subject to the overriding caveat that the presence of steps in addition to those described below may indicate, when taken together, that there are arrangements of which the main purpose or one of the main purposes is avoidance of tax: A business may choose to acquire a property-owning company as opposed to acquiring the property from that company. The purchaser may, after acquiring the company, transfer the property out of the company acquired and into a different company in the purchasing group. HMRC does not regard that of itself, and subject to the list of transactions mentioned above, as resulting in the avoidance of tax such that the bona fide test is not met, even if the acquisition of the property-owning company and the subsequent intra-group transfer of the property formed part of the same arrangements. The purchaser may, after acquiring the company and transferring the property intra-group, liquidate wind-up or strike-off the company acquired. HMRC does not regard that of itself as resulting in, or being evidence of, the avoidance of tax such that the bona fide test is not met, even if the liquidation, winding-up or striking-off formed part of the same arrangements that also included the acquisition and the intra-group transfer. In the scenarios described above, the bona fide test analysis would be the same even if the purchaser only became a member of a group for SDLT purposes as a result of the acquisition of the property-owning company. Greater clarity Since HMRC announced that it was looking at the whole area of acquiring property companies, there has been a degree of uncertainty in this area. The announcement by HMRC clarifies matters, and should hopefully enable transactions to proceed with greater certainty. Mon, 16 Sep 2013 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ HMRC recently clarified how it applies the anti-avoidance rule in the context of intra-group asset transfers following corporate acquisitions. Such transactions are relatively common in the property arena because of the Stamp Duty Land Tax (SDLT) saving involved. Background The legislation provides for a number of restrictions on the availability of group relief in SDLT transactions. One of the restrictions is that group relief is not available if the transaction is not effected for bona fide commercial reasons or the transaction forms part of arrangements of which the main purpose, or one of the main purposes, is the avoidance of tax ("bona fide test"). "Tax" includes SDLT, stamp duty, income tax, corporation tax and capital gains tax. HMRC has issued guidance in the form of a list of transactions where group relief would not be denied, which are set out in the HMRC SDLT manual at paragraph 23040. This list provides examples of where, although a tax advantage might be obtained by the purchaser's group, SDLT group relief will not be denied subject to the overriding caveat that "the transactions do not form part of any larger scheme or arrangement which might have tax consequences". As well as the restriction mentioned above, it is also necessary to consider whether the steps taken fall into the targeted anti-avoidance provisions of sections 75A-75C Finance Act 2003. HMRC seems to accept that deciding to sell shares rather than land so as to pay less tax or SDLT represents a straightforward legislative choice and is not, of itself, objectionable in its guidance on the General Anti-Abuse Rule. Further HMRC guidance HMRC Stamp Taxes has now confirmed the following, subject to the overriding caveat that the presence of steps in addition to those described below may indicate, when taken together, that there are arrangements of which the main purpose or one of the main purposes is avoidance of tax: A business may choose to acquire a property-owning company as opposed to acquiring the property from that company. The purchaser may, after acquiring the company, transfer the property out of the company acquired and into a different company in the purchasing group. HMRC does not regard that of itself, and subject to the list of transactions mentioned above, as resulting in the avoidance of tax such that the bona fide test is not met, even if the acquisition of the property-owning company and the subsequent intra-group transfer of the property formed part of the same arrangements. The purchaser may, after acquiring the company and transferring the property intra-group, liquidate wind-up or strike-off the company acquired. HMRC does not regard that of itself as resulting in, or being evidence of, the avoidance of tax such that the bona fide test is not met, even if the liquidation, winding-up or striking-off formed part of the same arrangements that also included the acquisition and the intra-group transfer. In the scenarios described above, the bona fide test analysis would be the same even if the purchaser only became a member of a group for SDLT purposes as a result of the acquisition of the property-owning company. Greater clarity Since HMRC announced that it was looking at the whole area of acquiring property companies, there has been a degree of uncertainty in this area. The announcement by HMRC clarifies matters, and should hopefully enable transactions to proceed with greater certainty. ]]>{8B8771C3-9AAA-4044-86F3-C8AEF638DC21}https://www.shoosmiths.co.uk/client-resources/legal-updates/new-sdlt-sub-sale-relief-rules-5983.aspxNew SDLT sub-sale relief rules In an earlier article we outlined the introduction of the new sub-sale relief rules. These have now been enacted in the Finance Act 2013. Broadly, under the new provisions, the intermediate purchaser in a transaction has to submit a claim for the relief. Otherwise, the intermediate purchaser will have to pay SDLT on the consideration payable under its contract as well as the ultimate purchaser paying SDLT, usually on substantially the same consideration. Details Despite representations having been made there appears to be a technical problem with the new SDLT sub-sale rules (relating to sub-sale transactions) which could have potentially significant commercial implications. The relevant paragraph of the new legislation requires that, in order for the intermediate purchaser to get relief, there has to be completion or substantial performance of the original contract. For the purposes of the legislation substantial performance means the purchaser taking possession of the whole, or substantially the whole, of the subject-matter of the contract or a substantial amount of the consideration being paid or provided. In practice, this is interpreted by the Revenue as meaning 90% or more of the land being acquired or the consideration being paid, as the case may be. If the original contract is over a large piece of land which is to be drawn down and sold on by a developer (intermediate purchaser) in tranches, then each time there is completion of a tranche, there will not be completion or substantial performance of the original contract (only part of it). Sub-sale relief will only be available for the acquisition of the tranche whose sub-sale triggers substantial performance or completion of the original contract. The rest of the acquisition SDLT will become payable at that point - but no further sub-sale relief will be available (as earlier and later sub-sales won't take place at the same time as, and in connection with, the completion or substantial performance of the original contract). Where existing contracts have been entered into, clearly there is not much the intermediate purchaser can do except hope the Revenue will change the law with retrospective effect. For purchasers thinking of entering into those sorts of contracts it would be better to split the single contract into a number of separate contracts so that substantial performance can be achieved on each tranche. Whilst this may avoid the potential additional SDLT cost, such an approach may not be considered particularly attractive from a commercial perspective. Unintended consequences Whilst this is likely to be a problem only in large-scale developments, it is worrying that such a problem should arise with new legislation, and this would seem to be an inevitable result of complex drafting giving rise to unintended consequences. Tue, 10 Sep 2013 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ In an earlier article we outlined the introduction of the new sub-sale relief rules. These have now been enacted in the Finance Act 2013. Broadly, under the new provisions, the intermediate purchaser in a transaction has to submit a claim for the relief. Otherwise, the intermediate purchaser will have to pay SDLT on the consideration payable under its contract as well as the ultimate purchaser paying SDLT, usually on substantially the same consideration. Details Despite representations having been made there appears to be a technical problem with the new SDLT sub-sale rules (relating to sub-sale transactions) which could have potentially significant commercial implications. The relevant paragraph of the new legislation requires that, in order for the intermediate purchaser to get relief, there has to be completion or substantial performance of the original contract. For the purposes of the legislation substantial performance means the purchaser taking possession of the whole, or substantially the whole, of the subject-matter of the contract or a substantial amount of the consideration being paid or provided. In practice, this is interpreted by the Revenue as meaning 90% or more of the land being acquired or the consideration being paid, as the case may be. If the original contract is over a large piece of land which is to be drawn down and sold on by a developer (intermediate purchaser) in tranches, then each time there is completion of a tranche, there will not be completion or substantial performance of the original contract (only part of it). Sub-sale relief will only be available for the acquisition of the tranche whose sub-sale triggers substantial performance or completion of the original contract. The rest of the acquisition SDLT will become payable at that point - but no further sub-sale relief will be available (as earlier and later sub-sales won't take place at the same time as, and in connection with, the completion or substantial performance of the original contract). Where existing contracts have been entered into, clearly there is not much the intermediate purchaser can do except hope the Revenue will change the law with retrospective effect. For purchasers thinking of entering into those sorts of contracts it would be better to split the single contract into a number of separate contracts so that substantial performance can be achieved on each tranche. Whilst this may avoid the potential additional SDLT cost, such an approach may not be considered particularly attractive from a commercial perspective. Unintended consequences Whilst this is likely to be a problem only in large-scale developments, it is worrying that such a problem should arise with new legislation, and this would seem to be an inevitable result of complex drafting giving rise to unintended consequences. ]]>{C3C14843-C282-499F-8D5B-2F37D6E0A965}https://www.shoosmiths.co.uk/client-resources/legal-updates/further-developments-in-sdlt-5961.aspxFurther developments in SDLT We have previously reported on earlier court decisions considering certain aspects of the SDLT legislation. Since then a number of further decisions have been issued. The first two: The Pollen Estate Trustee Company v HMRC and HMRC v DV3 RS Limited Partnership are decisions of the Court of Appeal, and the final one, Project Blue Limited v HMRC that of the First-Tier Tribunal. The Pollen Estate Case This case concerns the availability of relief from SDLT where the purchaser is a charity. In this case the charity was a joint purchaser with a non-charity. In the Upper Tribunal it was held that as a non-charity had an interest in the property the charity was not entitled to relief on its share of the purchase. This was on the technical basis that for the relief to be available the purchaser had to be a charity. As there were two purchasers; one a charity and one a non-charity and because they were each buying an undivided equitable share in the property, the relief could not apply. The Court of Appeal, taking the view that the policy of the legislation was to grant charities relief from SDLT where the requisite conditions were satisfied, took the view that the exemption should apply to that proportion of the beneficial interest that is attributable to the undivided share held by the charity for qualifying charitable purposes. This would seem to be a sensible result in the circumstances. It also has the benefit of meaning that where charities are acquiring property with a non-charity, it is not necessary to divide up the transaction artificially into two separate transactions so that the charity can claim relief on its proportion. As a result of this decision HMRC has invited affected charities to submit claims for overpaid SDLT. The DV3 Case This case considered the availability of sub-sale relief in the context of a company entering into a contract to acquire a property and, on completion, transferring the property to a partnership in which it owned virtually the entire economic interest. This is one of a number of well-known SDLT planning structures which are now coming to court. The result of the above arrangement as argued by the taxpayer was that, with the combination of sub-sale relief and the special rules applying to partnerships, there was little or no SDLT on the acquisition of the property. This structure was implemented before the mini anti-avoidance provision involving SDLT was enacted (see Project Blue below). The Court of Appeal broadly adopted the analysis put forward by the Revenue. Its analysis was that, because the deeming provisions in the sub-sale legislation provided that the original contract between the vendor and the immediate purchaser (the purchasing company) was ignored for SDLT purposes, this meant that the purchasing company had no land interest which it could transfer to the partnership (thus availing itself of the special partnership rules). For SDLT purposes the original vendor was treated as selling the land to the partnership, with the result that SDLT is payable by the partnership on the acquisition of the property. This is yet another victory for the Revenue in its fight against so-called "abusive" SDLT schemes. The Project Blue Case This is the first time a court has considered the mini SDLT anti-avoidance provisions contained in s75A Finance Act 2003. This involved a complex series of steps, the intention of which was to avoid SDLT on the sale of Chelsea Barracks by the MOD to a Jersey resident company, Project Blue Limited (PBL) by using a combination of the sub-sale and alternative finance reliefs of the SDLT legislation. Section 75A is widely drafted and applies where: one person (V) disposes of a chargeable interest and another person (P) acquires it or a chargeable interest deriving from it; a number of transactions, including the disposal and acquisition, are involved in connection with the disposal and acquisition (scheme transactions); and the SDLT payable in respect of the scheme transactions is less than the amount that would be payable on a notional transaction whereby P acquired V's chargeable interest The Tribunal concluded that the MOD was V and PBL was P. It held that P must be a person who has avoided SDLT; this put a significant limitation on the power of HMRC so that HMRC cannot arbitrarily decide who is P. In addition, the Tribunal made the following points: for a step to be involved in connection with the transaction there had to be some form of participation in the steps taken and it requires more than simply being a party in a chain of transactions in the Tribunal's view, section 75A does not require a tax avoidance motive to apply and disclosure under the tax avoidance disclosure rules was evidence of a tax avoidance motive Under the legislation the higher of the amounts given or received by the vendor or purchaser is taken to be the chargeable consideration for SDLT purposes. The net result is that the purchaser ended up paying another £11.2m in SDLT than if it had not implemented any tax planning in the first place. Conclusion Now that the Revenue has turned its resources to combating SDLT avoidance it is becoming an increasingly hazardous undertaking for a tax-payer to participate in these sorts of schemes. Tue, 03 Sep 2013 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ We have previously reported on earlier court decisions considering certain aspects of the SDLT legislation. Since then a number of further decisions have been issued. The first two: The Pollen Estate Trustee Company v HMRC and HMRC v DV3 RS Limited Partnership are decisions of the Court of Appeal, and the final one, Project Blue Limited v HMRC that of the First-Tier Tribunal. The Pollen Estate Case This case concerns the availability of relief from SDLT where the purchaser is a charity. In this case the charity was a joint purchaser with a non-charity. In the Upper Tribunal it was held that as a non-charity had an interest in the property the charity was not entitled to relief on its share of the purchase. This was on the technical basis that for the relief to be available the purchaser had to be a charity. As there were two purchasers; one a charity and one a non-charity and because they were each buying an undivided equitable share in the property, the relief could not apply. The Court of Appeal, taking the view that the policy of the legislation was to grant charities relief from SDLT where the requisite conditions were satisfied, took the view that the exemption should apply to that proportion of the beneficial interest that is attributable to the undivided share held by the charity for qualifying charitable purposes. This would seem to be a sensible result in the circumstances. It also has the benefit of meaning that where charities are acquiring property with a non-charity, it is not necessary to divide up the transaction artificially into two separate transactions so that the charity can claim relief on its proportion. As a result of this decision HMRC has invited affected charities to submit claims for overpaid SDLT. The DV3 Case This case considered the availability of sub-sale relief in the context of a company entering into a contract to acquire a property and, on completion, transferring the property to a partnership in which it owned virtually the entire economic interest. This is one of a number of well-known SDLT planning structures which are now coming to court. The result of the above arrangement as argued by the taxpayer was that, with the combination of sub-sale relief and the special rules applying to partnerships, there was little or no SDLT on the acquisition of the property. This structure was implemented before the mini anti-avoidance provision involving SDLT was enacted (see Project Blue below). The Court of Appeal broadly adopted the analysis put forward by the Revenue. Its analysis was that, because the deeming provisions in the sub-sale legislation provided that the original contract between the vendor and the immediate purchaser (the purchasing company) was ignored for SDLT purposes, this meant that the purchasing company had no land interest which it could transfer to the partnership (thus availing itself of the special partnership rules). For SDLT purposes the original vendor was treated as selling the land to the partnership, with the result that SDLT is payable by the partnership on the acquisition of the property. This is yet another victory for the Revenue in its fight against so-called "abusive" SDLT schemes. The Project Blue Case This is the first time a court has considered the mini SDLT anti-avoidance provisions contained in s75A Finance Act 2003. This involved a complex series of steps, the intention of which was to avoid SDLT on the sale of Chelsea Barracks by the MOD to a Jersey resident company, Project Blue Limited (PBL) by using a combination of the sub-sale and alternative finance reliefs of the SDLT legislation. Section 75A is widely drafted and applies where: one person (V) disposes of a chargeable interest and another person (P) acquires it or a chargeable interest deriving from it; a number of transactions, including the disposal and acquisition, are involved in connection with the disposal and acquisition (scheme transactions); and the SDLT payable in respect of the scheme transactions is less than the amount that would be payable on a notional transaction whereby P acquired V's chargeable interest The Tribunal concluded that the MOD was V and PBL was P. It held that P must be a person who has avoided SDLT; this put a significant limitation on the power of HMRC so that HMRC cannot arbitrarily decide who is P. In addition, the Tribunal made the following points: for a step to be involved in connection with the transaction there had to be some form of participation in the steps taken and it requires more than simply being a party in a chain of transactions in the Tribunal's view, section 75A does not require a tax avoidance motive to apply and disclosure under the tax avoidance disclosure rules was evidence of a tax avoidance motive Under the legislation the higher of the amounts given or received by the vendor or purchaser is taken to be the chargeable consideration for SDLT purposes. The net result is that the purchaser ended up paying another £11.2m in SDLT than if it had not implemented any tax planning in the first place. Conclusion Now that the Revenue has turned its resources to combating SDLT avoidance it is becoming an increasingly hazardous undertaking for a tax-payer to participate in these sorts of schemes. ]]>{A67D205E-C294-4E99-9A8F-0DC9A23777DC}https://www.shoosmiths.co.uk/client-resources/legal-updates/has-your-company-done-its-research-into-r-and-d-tax-relief-5504.aspxHas your company done its research into R&amp;D tax relief? Many companies may be unaware that they are eligible to claim research and development (R&D) tax relief, and will be surprised by how much relief they could claim. Introduction Companies carrying out R&amp;D related activities and incurring general day-to-day running costs may be able to reduce their corporation tax liability, by claiming relief under the R&amp;D tax relief scheme. The scope of qualifying R&amp;D expenditure is surprisingly broad, and the relief offered has become increasingly generous. Who can claim the relief? A company may still be eligible to claim R&amp;D tax relief even if it has: not started to trade for tax purposes sub-contracted the R&amp;D to a third party abandoned the activity which is the subject of the R&amp;D costs There is no exhaustive list of R&amp;D activities. It is necessary to consult the guidelines and seek professional advice to determine whether a particular expense qualifies as R&amp;D expenditure. Broadly, however, R&amp;D expenditure is defined for tax purposes as occurring when a project is undertaken to achieve an advance in science or technology. The activities which directly contribute to achieving this advance through the resolution of scientific or technological uncertainty will be classed as R&amp;D expenditure, along with certain qualifying indirect activities related to the project. As a result, you may be able to claim for R&amp;D tax relief if you carry out any of the following activities: manufacturing design work development of software development of any process that improves internal efficiencies using existing technologies in a unique way or combining them in an original manner What relief is available? The scheme is a tax incentive which enhances a company's expenditure against their taxable revenue, reducing their corporation tax liability. The tax incentive can be either: offset against corporation tax refunded against corporation tax already paid carried forward or backward as additional losses surrendered for group relief used to receive a payable tax credit Different regimes apply depending on whether the business is a small or medium sized enterprise (SME) or not. An SME (broadly one with a staff headcount less that 500, annual turnover not exceeding #100m, and a balance sheet total not exceeding #86m), can claim tax relief at 225%, i.e. for each £100 of qualifying costs, the company could have its corporation tax profits reduced by an additional £125 on top of the £100 spent. Alternatively, an SME can increase any allowable trading loss by 125% of the qualifying R&amp;D costs, i.e. £125 for each £100 spent, or, if it is in a loss-making position, attain a payable tax credit calculated at 11% (from 1 April 2012) of the surrenderable loss for that period. A company that is not an SME can only claim under the Large Company Scheme. A Large Company can deduct up to 130% of its eligible R&amp;D expenditure from taxable profits, or opt for a payable tax credit when in a tax loss-making position, instead of having to accumulate losses. The R&amp;D tax credit is paid at the rate of 10% of qualifying expenditure. Conclusion If you are not already claiming R&amp;D tax relief, perhaps you should be. If you are trying to improve certain processes in your business, there is likely to be some uncertainty about the success of the process, and R&amp;D tax relief claims can be applicable. The relief available itself has also become increasingly beneficial, especially for companies not paying corporation tax, and could provide crucial cash flow benefits for your company. Thu, 30 May 2013 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ Many companies may be unaware that they are eligible to claim research and development (R&D) tax relief, and will be surprised by how much relief they could claim. Introduction Companies carrying out R&amp;D related activities and incurring general day-to-day running costs may be able to reduce their corporation tax liability, by claiming relief under the R&amp;D tax relief scheme. The scope of qualifying R&amp;D expenditure is surprisingly broad, and the relief offered has become increasingly generous. Who can claim the relief? A company may still be eligible to claim R&amp;D tax relief even if it has: not started to trade for tax purposes sub-contracted the R&amp;D to a third party abandoned the activity which is the subject of the R&amp;D costs There is no exhaustive list of R&amp;D activities. It is necessary to consult the guidelines and seek professional advice to determine whether a particular expense qualifies as R&amp;D expenditure. Broadly, however, R&amp;D expenditure is defined for tax purposes as occurring when a project is undertaken to achieve an advance in science or technology. The activities which directly contribute to achieving this advance through the resolution of scientific or technological uncertainty will be classed as R&amp;D expenditure, along with certain qualifying indirect activities related to the project. As a result, you may be able to claim for R&amp;D tax relief if you carry out any of the following activities: manufacturing design work development of software development of any process that improves internal efficiencies using existing technologies in a unique way or combining them in an original manner What relief is available? The scheme is a tax incentive which enhances a company's expenditure against their taxable revenue, reducing their corporation tax liability. The tax incentive can be either: offset against corporation tax refunded against corporation tax already paid carried forward or backward as additional losses surrendered for group relief used to receive a payable tax credit Different regimes apply depending on whether the business is a small or medium sized enterprise (SME) or not. An SME (broadly one with a staff headcount less that 500, annual turnover not exceeding #100m, and a balance sheet total not exceeding #86m), can claim tax relief at 225%, i.e. for each £100 of qualifying costs, the company could have its corporation tax profits reduced by an additional £125 on top of the £100 spent. Alternatively, an SME can increase any allowable trading loss by 125% of the qualifying R&amp;D costs, i.e. £125 for each £100 spent, or, if it is in a loss-making position, attain a payable tax credit calculated at 11% (from 1 April 2012) of the surrenderable loss for that period. A company that is not an SME can only claim under the Large Company Scheme. A Large Company can deduct up to 130% of its eligible R&amp;D expenditure from taxable profits, or opt for a payable tax credit when in a tax loss-making position, instead of having to accumulate losses. The R&amp;D tax credit is paid at the rate of 10% of qualifying expenditure. Conclusion If you are not already claiming R&amp;D tax relief, perhaps you should be. If you are trying to improve certain processes in your business, there is likely to be some uncertainty about the success of the process, and R&amp;D tax relief claims can be applicable. The relief available itself has also become increasingly beneficial, especially for companies not paying corporation tax, and could provide crucial cash flow benefits for your company. ]]>{107908D1-65FE-4E86-B53C-DD7B9D343A6B}https://www.shoosmiths.co.uk/client-resources/legal-updates/empty-property-rates-relief-high-court-decision-5376.aspxEmpty property rates relief: High Court decision We have commented in the past about actions local authorities are taking to challenge the availability of charitable rates relief in connection with various arrangements that charities have been involved with. There has been a recent decision by the High Court in Kenya Aid Programme v Sheffield City Council which throws further light on this subject. Background As we have previously noted, it has become increasingly common for charities and property owners to enter into arrangements on empty properties that would otherwise incur a full rating charge to enable charities to occupy the premises so as to pay a lower amount in rates. The leases are usually set up so that the charity pays a peppercorn rent, the land-owner pays the rates via a donation to the charity plus the charity usually receives an additional donation, which represents its profit on the transaction. Local authorities have become increasingly concerned about the loss of rating income arising as a result of these arrangements. Decision The latest decision to consider these sorts of arrangements was that involving Kenya Aid Programme v Sheffield City Council. This is a High Court decision. The point at issue was whether the property was 'wholly or mainly' used for charitable purposes so that the charity was entitled to rates relief. The premises themselves were two large industrial units in Sheffield. The Council's argument was that the charity was not using the premises wholly or mainly for charitable purposes. This raised two considerations. First, the property must have been wholly or mainly used during the relevant period and secondly that use must have been wholly or mainly for charitable purposes. In particular, the Court should consider the extent and context of the use of the premises in order to establish whether the property was being used wholly or mainly for charitable purposes. The extent to which a property was being so used was a question of fact. The charity's argument was that it need only physically occupy the premises for the purposes of charitable activity; the extent or efficiency of its use of the premises was irrelevant. The Court did not agree with the charity's argument. It considered that it was necessary to take into account, and put weight upon, the true usage of the premises. In coming to its conclusion it found support in the earlier case of English Speaking Union v City of Edinburgh Council (2009). The judge in the English Speaking Union case held that it was necessary to take a common sense approach to the meaning of "wholly or mainly" and that meant looking at the actual physical use of the premises by the charity. Conclusion It is perhaps not surprising that the Court found for Sheffield City Council in the circumstances. It may also mean that in the future charities and landlords will be somewhat more wary about entering into those sorts of arrangements unless substantial occupation can be shown. Although the Court overturned the District Judge's decision it has been referred back to the District Judge for further consideration in the light of the Court's decision, as the Court held that the District Judge had taken some irrelevant factors into consideration. Thu, 02 May 2013 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ We have commented in the past about actions local authorities are taking to challenge the availability of charitable rates relief in connection with various arrangements that charities have been involved with. There has been a recent decision by the High Court in Kenya Aid Programme v Sheffield City Council which throws further light on this subject. Background As we have previously noted, it has become increasingly common for charities and property owners to enter into arrangements on empty properties that would otherwise incur a full rating charge to enable charities to occupy the premises so as to pay a lower amount in rates. The leases are usually set up so that the charity pays a peppercorn rent, the land-owner pays the rates via a donation to the charity plus the charity usually receives an additional donation, which represents its profit on the transaction. Local authorities have become increasingly concerned about the loss of rating income arising as a result of these arrangements. Decision The latest decision to consider these sorts of arrangements was that involving Kenya Aid Programme v Sheffield City Council. This is a High Court decision. The point at issue was whether the property was 'wholly or mainly' used for charitable purposes so that the charity was entitled to rates relief. The premises themselves were two large industrial units in Sheffield. The Council's argument was that the charity was not using the premises wholly or mainly for charitable purposes. This raised two considerations. First, the property must have been wholly or mainly used during the relevant period and secondly that use must have been wholly or mainly for charitable purposes. In particular, the Court should consider the extent and context of the use of the premises in order to establish whether the property was being used wholly or mainly for charitable purposes. The extent to which a property was being so used was a question of fact. The charity's argument was that it need only physically occupy the premises for the purposes of charitable activity; the extent or efficiency of its use of the premises was irrelevant. The Court did not agree with the charity's argument. It considered that it was necessary to take into account, and put weight upon, the true usage of the premises. In coming to its conclusion it found support in the earlier case of English Speaking Union v City of Edinburgh Council (2009). The judge in the English Speaking Union case held that it was necessary to take a common sense approach to the meaning of "wholly or mainly" and that meant looking at the actual physical use of the premises by the charity. Conclusion It is perhaps not surprising that the Court found for Sheffield City Council in the circumstances. It may also mean that in the future charities and landlords will be somewhat more wary about entering into those sorts of arrangements unless substantial occupation can be shown. Although the Court overturned the District Judge's decision it has been referred back to the District Judge for further consideration in the light of the Court's decision, as the Court held that the District Judge had taken some irrelevant factors into consideration. ]]>{326D8C0C-8E35-45F8-B5F8-087057F5AB6F}https://www.shoosmiths.co.uk/client-resources/legal-updates/seed-investment-scheme-to-take-root-seis-extended-5249.aspxSeed investment scheme begins to take root - SEIS extended The Budget 2013 contained a number of measures to extend the capital gains tax relief for re-investing gains in Seed Enterprise Investment Scheme (SEIS) shares. Introduction Amidst the inevitable analysis of the winners and losers in the wake of George Osborne's fourth budget, one group to emerge with an undoubted victory, albeit a qualified one, are business angels and the start-up companies in which they invest. SEIS was introduced in 2012 as the junior companion to the Enterprise Investment Scheme, which offers tax reliefs to those investing in small companies in the light of the risks associated with doing so. SEIS provides even more attractive reliefs in respect of investments in even more early-stage companies, which often struggle to attract investment because of the heightened risks attached. The measures The original scheme allows investors subscribing for new ordinary shares in qualifying companies, broadly unquoted companies with gross assets of £200,000 or less and fewer than 25 full-time employees which carry out a qualifying trade, to claim both income tax and capital gains tax relief. The income tax relief is against 50% of the sum invested in the start-up company up to an annual investment limit of £100,000, provided the shares are held for three years. An SEIS investor qualifying for such relief can also claim an exemption from capital gains tax on any gain arising on the disposal of the shares. The scheme also allowed for gains arising on the disposal of any asset in 2012-13 to be exempt from capital gains tax to the extent that an amount equivalent to such gain was reinvested in a qualifying company in the same year, again up to a maximum limit of £100,000. The measures to be introduced in Finance Bill 2013 will extend the latter capital gains tax exemption to gains made in 2013-14, provided the sum is reinvested in SEIS shares during 2013-14 or 2014-15. However, the relief will be limited to only 50% of the amount re-invested, rather than 100% as under the original rules. The government has also moved to remove an unintended feature of the original rules, which prevented certain companies from being eligible only because they had been established by a company formation agent. The 'independence' condition will be amended in Finance Bill 2013 to cover off this inadvertent gap in the legislation. Conclusion This extension of the SEIS scheme will undoubtedly be seen as a step in the right direction towards encouraging activity in the start-up business sector. However, the reduction in the relief by 50% may leave some feeling that the measures could have gone further. Moreover, the extension of SEIS reinvestment relief could be viewed as a tacit acknowledgment that take-up of the scheme has not been as extensive as hoped. The reaction of investors over the next two years will determine whether the seed investment scheme will grow further, or whether alternative routes will have to be sought to boost our smallest businesses. Mon, 15 Apr 2013 00:00:00 +0100<![CDATA[Kate Featherstone Tom Wilde ]]><![CDATA[ The Budget 2013 contained a number of measures to extend the capital gains tax relief for re-investing gains in Seed Enterprise Investment Scheme (SEIS) shares. Introduction Amidst the inevitable analysis of the winners and losers in the wake of George Osborne's fourth budget, one group to emerge with an undoubted victory, albeit a qualified one, are business angels and the start-up companies in which they invest. SEIS was introduced in 2012 as the junior companion to the Enterprise Investment Scheme, which offers tax reliefs to those investing in small companies in the light of the risks associated with doing so. SEIS provides even more attractive reliefs in respect of investments in even more early-stage companies, which often struggle to attract investment because of the heightened risks attached. The measures The original scheme allows investors subscribing for new ordinary shares in qualifying companies, broadly unquoted companies with gross assets of £200,000 or less and fewer than 25 full-time employees which carry out a qualifying trade, to claim both income tax and capital gains tax relief. The income tax relief is against 50% of the sum invested in the start-up company up to an annual investment limit of £100,000, provided the shares are held for three years. An SEIS investor qualifying for such relief can also claim an exemption from capital gains tax on any gain arising on the disposal of the shares. The scheme also allowed for gains arising on the disposal of any asset in 2012-13 to be exempt from capital gains tax to the extent that an amount equivalent to such gain was reinvested in a qualifying company in the same year, again up to a maximum limit of £100,000. The measures to be introduced in Finance Bill 2013 will extend the latter capital gains tax exemption to gains made in 2013-14, provided the sum is reinvested in SEIS shares during 2013-14 or 2014-15. However, the relief will be limited to only 50% of the amount re-invested, rather than 100% as under the original rules. The government has also moved to remove an unintended feature of the original rules, which prevented certain companies from being eligible only because they had been established by a company formation agent. The 'independence' condition will be amended in Finance Bill 2013 to cover off this inadvertent gap in the legislation. Conclusion This extension of the SEIS scheme will undoubtedly be seen as a step in the right direction towards encouraging activity in the start-up business sector. However, the reduction in the relief by 50% may leave some feeling that the measures could have gone further. Moreover, the extension of SEIS reinvestment relief could be viewed as a tacit acknowledgment that take-up of the scheme has not been as extensive as hoped. The reaction of investors over the next two years will determine whether the seed investment scheme will grow further, or whether alternative routes will have to be sought to boost our smallest businesses. ]]>{3714DFF0-0BBB-48E1-A2EF-66A0649FE433}https://www.shoosmiths.co.uk/client-resources/legal-updates/budget-2013-tax-summary-5085.aspxBudget 2013: Tax Summary The Chancellor presented the 2013 Budget to Parliament yesterday (20 March). The following is a summary of the main tax points of interest with the draft Finance Bill to be published on 28 March: Business Taxes Corporation Tax - rates: as announced in Autumn Statement 2012, the main rate of corporation tax will be reduced from 23% in April 2013 to 21% in April 2014. However this will now be reduced further to 20% from April 2015, so that from that date there will be a unified main rate of 20% for all companies. Corporation Tax - exit charges: companies moving their operations to another EU or EEA state will have the ability to defer payment of any exit charges, although the amounts deferred will be subject to interest. The measures will apply retrospectively to allow companies to opt for deferred payment in respect of charges arising on or after 11 March 2012. Corporation Tax - loss relief anti-avoidance: in certain circumstances trading losses where there is a transfer of a trade within a new group following the change of ownership of a company will be disallowed. Also the availability of non-trading debits, non-trading loan relationships and non-trading losses on intangible fixed assets after the change of ownership of a shell or dormant company will be restricted. Corporation Tax - reliefs: as announced in Autumn Statement 2012, from April 2013 corporation tax reliefs for the video games, animation and high-end television industries will be introduced. National Insurance - employment allowance: from April 2014, an annual allowance of £2,000 will be introduced, after consultation, which all businesses and charities will be able to offset against their employer Class 1 secondary NI liability. Capital Allowances - railway assets and ships: from 1 April 2013 expenditure on railway assets and ships will no longer be excluded from access to 100% first-year allowances. Capital Allowances - energy-saving and water efficient technologies: the list of technologies and products which attract 100% capital allowances under the energy-saving and water efficient enhanced capital allowances scheme will be updated. Capital Allowances - Northern Ireland: measures are to be introduced to ensure that expenditure on plant and machinery in Northern Ireland qualifying to receive feed in tariffs or renewable heat incentive payments will not also qualify for the enhanced capital allowances for energy-saving technologies, bringing the treatment in line with the rest of the UK. Capital Allowances - low emission vehicles: legislation will be included in Finance Bill 2015 to extend the 100% capital allowance for expenditure on low emission vehicles for an extra 3 years, up to 31 March 2018. Taxable Profits - small businesses: as announced at Budget 2012, from 2013-14 eligible small unincorporated businesses (generally those whose receipts do not exceed the VAT registration threshold) will be able to work out their taxable profits using the simpler 'cash basis', rather than the accruals basis. Close Companies - loans to participators: with immediate effect, avoidance of the s.455 tax charge on loans from close companies will be tackled by clarifying that loans to various intermediaries are subject to the charge, by bringing other transfers of value within the scope of the charge, and by ensuring that relief is only given for genuine repayments. Disincorporation relief: as announced in December 2012, a relief from corporation tax on chargeable gains when a small company transfers its business to its shareholders will be introduced for disincorporations on or after 1 April 2013 to 31 March 2018, provided that certain conditions are met and a valid claim is made. Research and Development: as announced in Autumn Statement 2011, companies will be able to claim a 10% above the line credit for qualifying R&amp;D expenditure incurred on or after 1 April 2013. Companies will be able to elect whether to opt in to the ATL credit scheme until 31 March 2016, after which it will become mandatory. Bank Levy: the rate of the Bank Levy will increase further from 0.130% from 1 January 2013 to 0.142% from 1 January 2014. Code of Practice on Taxation for Banks: the Government will consult on a proposal for HMRC to publish annual reports, from 2015 onwards, on the operation of the Code of Practice on Taxation for Banks. Review of loan relationships and derivative contracts: the Government will consult on measures to clarify and simplify the legislation governing the taxation of loan relationships and derivative contracts. Legislation will be in Finance Bill 2014 and Finance Bill 2015. Trade and property business deductions - anti-avoidance: the Government will introduce targeted anti-avoidance rules in relation to the rules prohibiting and allowing deductions for income and corporation tax purposes in Finance Bill 2013, to take effect from 21 December 2012. Personal Taxes Income Tax - personal allowance: for 2014-15, the personal allowance limit will be increased further to £10,000, from £9,440 for 2013-14. As announced at Budget 2011, once the personal allowance has reached £10,000, it will then increase by Consumer Prices Index starting from 2015-16. Income Tax - basic rate threshold: for 2014-15, the basic rate threshold will be reduced further to £31,865, from £32,010 for 2013-14. Income Tax - rules on interest: as announced in October 2012, legislation will be introduced in Finance Bill 2013 on disguised interest and on the deduction of income tax from interest on compensation payments, specialty debt and interest in kind. Income Tax - capping unlimited reliefs: as announced at Budget 2012, a cap on all previously unlimited income tax reliefs (excluding charitable reliefs) will be introduced at the greater of £50,000 or 25% of the individual's income. National Insurance - administrative simplification: the Government will consult on measures to simplify the administrative process for self-employed persons in respect of Class 2 NI. Capital Gains Tax - annual exempt amount: as announced at Autumn Statement 2012, the AEA will increase by 1% in 2014-15, to £11,000, and by the same percentage in 2015-16, to £11,100. Capital Gains Tax - SEIS CGT re-investment relief: the CGT relief for re-investing gains in Seed Enterprise Investment Scheme shares will extend to gains made in 2013-14, providing the gains are re-invested in 2013-14 or 2014-15. The extension is for half of the qualifying re-invested amount. Capital Gains Tax - SEIS eligible companies: the SEIS conditions will be changed to ensure that companies established by company formation agents are not inadvertently disqualified from the regime. Inheritance Tax - nil rate band: as announced in February, the IHT nil-rate band will remain frozen at £325,000 until April 2018. Inheritance Tax - spouses and civil partners domiciled overseas: as announced in Budget 2012, the cap on transfers between UK-domiciled and non-UK domiciled spouses or civil partners will be increased to £325,000, and a non-UK domiciled spouse or civil partner will be able to elect to be treated as UK-domiciled for IHT purposes. Inheritance Tax - limiting the deduction for liabilities: legislation will be introduced in Finance Bill 2013 to close an avoidance scheme exploiting the current rules on allowable deductions from the value of the estate for liabilities owed by the deceased on death. Pensions - lifetime allowance: as announced at Autumn Statement 2012, the lifetime allowance will be reduced from £1.5 million to £1.25 million for 2014-15. Pensions - annual allowance: as announced at Autumn Statement 2012, the annual allowance will be reduced from £50,000 to £40,000 for 2014-15. Statutory and Ordinary Residence: as announced at Budget 2011, legislation will be introduced in Finance Bill 2013 to eliminate the concept of ordinary residence and introduce a statutory definition of tax residence for individuals. In addition, Overseas Workday Relief will be placed on a statutory footing. Employment Employee shareholder status: as announced at Autumn Statement 2012, the Government will introduce a new employee shareholder status giving individual employees a stake in their employer's business. Legislation will be introduced in Finance Bill 2013 exempting from CGT any capital gains on the disposal of employee shareholder shares up to a maximum of £50,000. Provisions will also be included to reduce the income tax and NI due on the acquisition of employee shareholder shares (by introducing a deemed payment of £2,000 for the shares). Businesses will also benefit from being able to claim relief against the acquisition of the shares by the employee shareholders where appropriate. Enterprise Management Incentives: as announced at Budget 2012, legislation will be introduced in Finance Bill 2013 to remove the minimum 5% holding requirement to qualify for entrepreneurs' relief in relation to shares acquired on the exercise of EMI options; to include the period during which the option is held in determining whether the minimum 12 month holding period requirement is met; and relief will be extended to the disposal of certain shares that replace EMI shares on a reorganisation or exchange. Review of tax advantages employee share schemes: as announced in December 2012, legislation will be introduced in Finance Bill 2013 implementing a number of the recommendations made by the Office of Tax Simplification ("OTS") in its review of tax advantaged employee share schemes. Legislation will be introduced in Finance Bill 2014 replacing the current system of HMRC approval of tax advantaged share schemes with self-certification by businesses. Review of unapproved employee share schemes: the Government will consult on the recommendations in the OTS review of unapproved share schemes, and legislation will be introduced in future finance bills. Employee ownership - relief: legislation will be introduced in Finance Bill 2014 creating a CGT relief where a controlling business interest is sold into an employee ownership structure. Employment-related loans: the statutory threshold for taxable cheap loans which can be made to employees without giving rise to a tax charge will be increased from £5,000 to £10,000. Partnerships - anti-avoidance: the Government will consult on measures to tackle the disguising of employment relationships through LLPs and the manipulation of profit / loss allocations by partnerships to secure tax advantages. Legislation will be in Finance Bill 2014. Company car tax rates: legislation will be introduced in Finance Bill 2013 to increase the percentages linked to CO2 emissions used to calculate the cash equivalent of the benefit of company cars for 2015-16, and again for 2016-17, up to a new maximum of 37%. New bands for low emission cars will be introduced in 2015-16 and from 2016-17 the 3% diesel supplement will be removed. Car and van fuel benefit charge: the rate of fuel benefit charge for company cars and fuel benefit charge and benefit charge for company vans will increase in line with inflation for 2014-15 (based on the September 2013 RPI figure). IR35 - as previously announced, the Government will strengthen the existing intermediaries legislation (IR35) to put beyond doubt whether it applies to office holders for tax purposes. Tax Reliefs - expenditure on health-related interventions: legislation will be introduced in Finance Bill 2014 so that amounts up to £500 paid by employers on health-related interventions recommended to support employees to return to work are not treated as taxable benefits in kind. Offshore employment intermediaries - anti-avoidance: as announced at Autumn Statement 2012, the Government will consult on measures to ensure that offshore employment intermediaries pay the correct income tax and NI. Legislation will be in Finance Bill 2014. Property High-value UK residential property held by non-natural persons (NNPs): as announced at Budget 2012, a package of taxes is to be introduced in relation to residential properties valued at over £2m and held by certain companies, partnerships with company members and managers of collective investment schemes, other than genuine commercial businesses and other limited categories as follows: further reliefs will be introduced in Finance Act 2013 removing certain types of property from the 15% SDLT rate on acquisition; an annual tax on enveloped dwellings will be introduced from 1 April 2013 and will be chargeable at flat rates within certain property value bands, which will be increased by CPI inflation each year; and CGT will be chargeable at 28% on disposals of such properties by NNPs from 6 April 2013 (although only on any gain accrued from 6 April 2013 where a property was acquired before that date). SDLT avoidance schemes: with immediate effective legislation will be introduced to close SDLT avoidance schemes involving a sub-sale which is not completed for a number of years. VAT Registration and deregistration thresholds: the taxable turnover threshold over which VAT registration is required will increase from £77,000 to £79,000; the taxable turnover threshold under which VAT deregistration is possible will increase from £75,000 to £77,000; and the registration and deregistration thresholds for acquisitions from other EU Member States will increase from £77,000 to £79,000. Changes to zero-rating of exports from UK: the Government will consult on making certain sales of goods to businesses registered for VAT in the UK but with no business establishment here zero-rated, where they arrange for the goods to be exported outside the EU. Place of supply rules: legislation will be included in Finance Bill 2014 to tax business to consumer supplies of telecoms, broadcasting and e-services within the EU in the Member State in which the consumer, rather than the business, is located although to alleviate this a Mini One Stop Shop will be introduced from 1 January 2015. Charitable buildings: as announced at Budget 2012, charitable buildings will be withdrawn from the scope of the VAT reduced rate for the supply and installation of energy-saving materials, from 1 August 2013. HMRC and Tax Administration General anti-abuse rule: as announced at Budget 2012, a general anti-abuse rule will be introduced in Finance Bill 2013 providing for the counteraction of tax advantages arising from abusive tax arrangements in relation to income tax, NICs, corporation tax, CGT, IHT, petroleum revenue tax, SDLT and the new annual tax on enveloped dwellings. Anti-avoidance - HMRC offshore evasion strategy: HMRC has published its latest strategy for tackling offshore evasion, entitled 'No safe havens'. In addition it has agreed packages of measures with the governments of the Isle of Man, Guernsey and Jersey, comprising of automatically exchanging financial information on UK taxpayers with offshore accounts and creating a disclosure facility so that people can disclose this information before it is automatically exchanged. Anti-avoidance - high-risk promoters: the Government will consult on measures to tackle the actions of high-risk promoters of tax-avoidance schemes, including the proposal to use 'naming and shaming' penalties. Legislation will be in Finance Bill 2014. PAYE - real time information penalties: as announced at Budget 2012, new late filing penalties and amendments to the late payment penalties will be made in respect of RTI returns. Penalties will vary according to the number of employees in the scheme and will apply from 6 April 2014. Avoidance schemes - notification requirement: the Government will consult on proposals to introduce notification requirements for taxpayers using avoidance schemes defeated in litigation by HMRC. Legislation will be in Finance Bill 2014. Data gathering from card payment processors: HMRC will be given new powers to require card payment processors to provide bulk data about business taxpayers, so that they can identify those who do not declare their full sales. Customs penalties: the Government will consult on proposals to modernise customs civil penalties by bringing them in line with other HMRC penalties. Legislation will be in Finance Bill 2014. Procurement: as announced at Autumn Statement 2012, suppliers to central Government will have to certify tax compliance when bidding for Government contracts from 1 April 2013. Other Stamp Duty - junior shares: the Government will consult on abolishing stamp duty on shares quoted on growth markets such as AIM and the ISDX Growth Market. Legislation will be in Finance Bill 2014. Gift Aid: the Government will consult on measures to improve the take-up of Gift Aid on donations made digitally. Air passenger duty: air passenger duty rates will be increased in line with inflation (based on RPI) from 1 April 2013. Landfill tax: the standard rate of landfill tax will increase by £8 per tonne to £80 per tonne for disposals of waste to landfill from 1 April 2014, whilst the lower rate will remain frozen at £2.50 per tonne for 2014-15. Social investment tax relief: legislation may be introduced in Finance Bill 2014 following consultation on the introduction of a new tax relief to encourage investment in social enterprises. Thu, 21 Mar 2013 00:00:00 Z<![CDATA[Kate Featherstone Tom Wilde ]]><![CDATA[ The Chancellor presented the 2013 Budget to Parliament yesterday (20 March). The following is a summary of the main tax points of interest with the draft Finance Bill to be published on 28 March: Business Taxes Corporation Tax - rates: as announced in Autumn Statement 2012, the main rate of corporation tax will be reduced from 23% in April 2013 to 21% in April 2014. However this will now be reduced further to 20% from April 2015, so that from that date there will be a unified main rate of 20% for all companies. Corporation Tax - exit charges: companies moving their operations to another EU or EEA state will have the ability to defer payment of any exit charges, although the amounts deferred will be subject to interest. The measures will apply retrospectively to allow companies to opt for deferred payment in respect of charges arising on or after 11 March 2012. Corporation Tax - loss relief anti-avoidance: in certain circumstances trading losses where there is a transfer of a trade within a new group following the change of ownership of a company will be disallowed. Also the availability of non-trading debits, non-trading loan relationships and non-trading losses on intangible fixed assets after the change of ownership of a shell or dormant company will be restricted. Corporation Tax - reliefs: as announced in Autumn Statement 2012, from April 2013 corporation tax reliefs for the video games, animation and high-end television industries will be introduced. National Insurance - employment allowance: from April 2014, an annual allowance of £2,000 will be introduced, after consultation, which all businesses and charities will be able to offset against their employer Class 1 secondary NI liability. Capital Allowances - railway assets and ships: from 1 April 2013 expenditure on railway assets and ships will no longer be excluded from access to 100% first-year allowances. Capital Allowances - energy-saving and water efficient technologies: the list of technologies and products which attract 100% capital allowances under the energy-saving and water efficient enhanced capital allowances scheme will be updated. Capital Allowances - Northern Ireland: measures are to be introduced to ensure that expenditure on plant and machinery in Northern Ireland qualifying to receive feed in tariffs or renewable heat incentive payments will not also qualify for the enhanced capital allowances for energy-saving technologies, bringing the treatment in line with the rest of the UK. Capital Allowances - low emission vehicles: legislation will be included in Finance Bill 2015 to extend the 100% capital allowance for expenditure on low emission vehicles for an extra 3 years, up to 31 March 2018. Taxable Profits - small businesses: as announced at Budget 2012, from 2013-14 eligible small unincorporated businesses (generally those whose receipts do not exceed the VAT registration threshold) will be able to work out their taxable profits using the simpler 'cash basis', rather than the accruals basis. Close Companies - loans to participators: with immediate effect, avoidance of the s.455 tax charge on loans from close companies will be tackled by clarifying that loans to various intermediaries are subject to the charge, by bringing other transfers of value within the scope of the charge, and by ensuring that relief is only given for genuine repayments. Disincorporation relief: as announced in December 2012, a relief from corporation tax on chargeable gains when a small company transfers its business to its shareholders will be introduced for disincorporations on or after 1 April 2013 to 31 March 2018, provided that certain conditions are met and a valid claim is made. Research and Development: as announced in Autumn Statement 2011, companies will be able to claim a 10% above the line credit for qualifying R&amp;D expenditure incurred on or after 1 April 2013. Companies will be able to elect whether to opt in to the ATL credit scheme until 31 March 2016, after which it will become mandatory. Bank Levy: the rate of the Bank Levy will increase further from 0.130% from 1 January 2013 to 0.142% from 1 January 2014. Code of Practice on Taxation for Banks: the Government will consult on a proposal for HMRC to publish annual reports, from 2015 onwards, on the operation of the Code of Practice on Taxation for Banks. Review of loan relationships and derivative contracts: the Government will consult on measures to clarify and simplify the legislation governing the taxation of loan relationships and derivative contracts. Legislation will be in Finance Bill 2014 and Finance Bill 2015. Trade and property business deductions - anti-avoidance: the Government will introduce targeted anti-avoidance rules in relation to the rules prohibiting and allowing deductions for income and corporation tax purposes in Finance Bill 2013, to take effect from 21 December 2012. Personal Taxes Income Tax - personal allowance: for 2014-15, the personal allowance limit will be increased further to £10,000, from £9,440 for 2013-14. As announced at Budget 2011, once the personal allowance has reached £10,000, it will then increase by Consumer Prices Index starting from 2015-16. Income Tax - basic rate threshold: for 2014-15, the basic rate threshold will be reduced further to £31,865, from £32,010 for 2013-14. Income Tax - rules on interest: as announced in October 2012, legislation will be introduced in Finance Bill 2013 on disguised interest and on the deduction of income tax from interest on compensation payments, specialty debt and interest in kind. Income Tax - capping unlimited reliefs: as announced at Budget 2012, a cap on all previously unlimited income tax reliefs (excluding charitable reliefs) will be introduced at the greater of £50,000 or 25% of the individual's income. National Insurance - administrative simplification: the Government will consult on measures to simplify the administrative process for self-employed persons in respect of Class 2 NI. Capital Gains Tax - annual exempt amount: as announced at Autumn Statement 2012, the AEA will increase by 1% in 2014-15, to £11,000, and by the same percentage in 2015-16, to £11,100. Capital Gains Tax - SEIS CGT re-investment relief: the CGT relief for re-investing gains in Seed Enterprise Investment Scheme shares will extend to gains made in 2013-14, providing the gains are re-invested in 2013-14 or 2014-15. The extension is for half of the qualifying re-invested amount. Capital Gains Tax - SEIS eligible companies: the SEIS conditions will be changed to ensure that companies established by company formation agents are not inadvertently disqualified from the regime. Inheritance Tax - nil rate band: as announced in February, the IHT nil-rate band will remain frozen at £325,000 until April 2018. Inheritance Tax - spouses and civil partners domiciled overseas: as announced in Budget 2012, the cap on transfers between UK-domiciled and non-UK domiciled spouses or civil partners will be increased to £325,000, and a non-UK domiciled spouse or civil partner will be able to elect to be treated as UK-domiciled for IHT purposes. Inheritance Tax - limiting the deduction for liabilities: legislation will be introduced in Finance Bill 2013 to close an avoidance scheme exploiting the current rules on allowable deductions from the value of the estate for liabilities owed by the deceased on death. Pensions - lifetime allowance: as announced at Autumn Statement 2012, the lifetime allowance will be reduced from £1.5 million to £1.25 million for 2014-15. Pensions - annual allowance: as announced at Autumn Statement 2012, the annual allowance will be reduced from £50,000 to £40,000 for 2014-15. Statutory and Ordinary Residence: as announced at Budget 2011, legislation will be introduced in Finance Bill 2013 to eliminate the concept of ordinary residence and introduce a statutory definition of tax residence for individuals. In addition, Overseas Workday Relief will be placed on a statutory footing. Employment Employee shareholder status: as announced at Autumn Statement 2012, the Government will introduce a new employee shareholder status giving individual employees a stake in their employer's business. Legislation will be introduced in Finance Bill 2013 exempting from CGT any capital gains on the disposal of employee shareholder shares up to a maximum of £50,000. Provisions will also be included to reduce the income tax and NI due on the acquisition of employee shareholder shares (by introducing a deemed payment of £2,000 for the shares). Businesses will also benefit from being able to claim relief against the acquisition of the shares by the employee shareholders where appropriate. Enterprise Management Incentives: as announced at Budget 2012, legislation will be introduced in Finance Bill 2013 to remove the minimum 5% holding requirement to qualify for entrepreneurs' relief in relation to shares acquired on the exercise of EMI options; to include the period during which the option is held in determining whether the minimum 12 month holding period requirement is met; and relief will be extended to the disposal of certain shares that replace EMI shares on a reorganisation or exchange. Review of tax advantages employee share schemes: as announced in December 2012, legislation will be introduced in Finance Bill 2013 implementing a number of the recommendations made by the Office of Tax Simplification ("OTS") in its review of tax advantaged employee share schemes. Legislation will be introduced in Finance Bill 2014 replacing the current system of HMRC approval of tax advantaged share schemes with self-certification by businesses. Review of unapproved employee share schemes: the Government will consult on the recommendations in the OTS review of unapproved share schemes, and legislation will be introduced in future finance bills. Employee ownership - relief: legislation will be introduced in Finance Bill 2014 creating a CGT relief where a controlling business interest is sold into an employee ownership structure. Employment-related loans: the statutory threshold for taxable cheap loans which can be made to employees without giving rise to a tax charge will be increased from £5,000 to £10,000. Partnerships - anti-avoidance: the Government will consult on measures to tackle the disguising of employment relationships through LLPs and the manipulation of profit / loss allocations by partnerships to secure tax advantages. Legislation will be in Finance Bill 2014. Company car tax rates: legislation will be introduced in Finance Bill 2013 to increase the percentages linked to CO2 emissions used to calculate the cash equivalent of the benefit of company cars for 2015-16, and again for 2016-17, up to a new maximum of 37%. New bands for low emission cars will be introduced in 2015-16 and from 2016-17 the 3% diesel supplement will be removed. Car and van fuel benefit charge: the rate of fuel benefit charge for company cars and fuel benefit charge and benefit charge for company vans will increase in line with inflation for 2014-15 (based on the September 2013 RPI figure). IR35 - as previously announced, the Government will strengthen the existing intermediaries legislation (IR35) to put beyond doubt whether it applies to office holders for tax purposes. Tax Reliefs - expenditure on health-related interventions: legislation will be introduced in Finance Bill 2014 so that amounts up to £500 paid by employers on health-related interventions recommended to support employees to return to work are not treated as taxable benefits in kind. Offshore employment intermediaries - anti-avoidance: as announced at Autumn Statement 2012, the Government will consult on measures to ensure that offshore employment intermediaries pay the correct income tax and NI. Legislation will be in Finance Bill 2014. Property High-value UK residential property held by non-natural persons (NNPs): as announced at Budget 2012, a package of taxes is to be introduced in relation to residential properties valued at over £2m and held by certain companies, partnerships with company members and managers of collective investment schemes, other than genuine commercial businesses and other limited categories as follows: further reliefs will be introduced in Finance Act 2013 removing certain types of property from the 15% SDLT rate on acquisition; an annual tax on enveloped dwellings will be introduced from 1 April 2013 and will be chargeable at flat rates within certain property value bands, which will be increased by CPI inflation each year; and CGT will be chargeable at 28% on disposals of such properties by NNPs from 6 April 2013 (although only on any gain accrued from 6 April 2013 where a property was acquired before that date). SDLT avoidance schemes: with immediate effective legislation will be introduced to close SDLT avoidance schemes involving a sub-sale which is not completed for a number of years. VAT Registration and deregistration thresholds: the taxable turnover threshold over which VAT registration is required will increase from £77,000 to £79,000; the taxable turnover threshold under which VAT deregistration is possible will increase from £75,000 to £77,000; and the registration and deregistration thresholds for acquisitions from other EU Member States will increase from £77,000 to £79,000. Changes to zero-rating of exports from UK: the Government will consult on making certain sales of goods to businesses registered for VAT in the UK but with no business establishment here zero-rated, where they arrange for the goods to be exported outside the EU. Place of supply rules: legislation will be included in Finance Bill 2014 to tax business to consumer supplies of telecoms, broadcasting and e-services within the EU in the Member State in which the consumer, rather than the business, is located although to alleviate this a Mini One Stop Shop will be introduced from 1 January 2015. Charitable buildings: as announced at Budget 2012, charitable buildings will be withdrawn from the scope of the VAT reduced rate for the supply and installation of energy-saving materials, from 1 August 2013. HMRC and Tax Administration General anti-abuse rule: as announced at Budget 2012, a general anti-abuse rule will be introduced in Finance Bill 2013 providing for the counteraction of tax advantages arising from abusive tax arrangements in relation to income tax, NICs, corporation tax, CGT, IHT, petroleum revenue tax, SDLT and the new annual tax on enveloped dwellings. Anti-avoidance - HMRC offshore evasion strategy: HMRC has published its latest strategy for tackling offshore evasion, entitled 'No safe havens'. In addition it has agreed packages of measures with the governments of the Isle of Man, Guernsey and Jersey, comprising of automatically exchanging financial information on UK taxpayers with offshore accounts and creating a disclosure facility so that people can disclose this information before it is automatically exchanged. Anti-avoidance - high-risk promoters: the Government will consult on measures to tackle the actions of high-risk promoters of tax-avoidance schemes, including the proposal to use 'naming and shaming' penalties. Legislation will be in Finance Bill 2014. PAYE - real time information penalties: as announced at Budget 2012, new late filing penalties and amendments to the late payment penalties will be made in respect of RTI returns. Penalties will vary according to the number of employees in the scheme and will apply from 6 April 2014. Avoidance schemes - notification requirement: the Government will consult on proposals to introduce notification requirements for taxpayers using avoidance schemes defeated in litigation by HMRC. Legislation will be in Finance Bill 2014. Data gathering from card payment processors: HMRC will be given new powers to require card payment processors to provide bulk data about business taxpayers, so that they can identify those who do not declare their full sales. Customs penalties: the Government will consult on proposals to modernise customs civil penalties by bringing them in line with other HMRC penalties. Legislation will be in Finance Bill 2014. Procurement: as announced at Autumn Statement 2012, suppliers to central Government will have to certify tax compliance when bidding for Government contracts from 1 April 2013. Other Stamp Duty - junior shares: the Government will consult on abolishing stamp duty on shares quoted on growth markets such as AIM and the ISDX Growth Market. Legislation will be in Finance Bill 2014. Gift Aid: the Government will consult on measures to improve the take-up of Gift Aid on donations made digitally. Air passenger duty: air passenger duty rates will be increased in line with inflation (based on RPI) from 1 April 2013. Landfill tax: the standard rate of landfill tax will increase by £8 per tonne to £80 per tonne for disposals of waste to landfill from 1 April 2014, whilst the lower rate will remain frozen at £2.50 per tonne for 2014-15. Social investment tax relief: legislation may be introduced in Finance Bill 2014 following consultation on the introduction of a new tax relief to encourage investment in social enterprises. ]]>{402CA652-8419-4B0F-B70F-8BCB4592E98D}https://www.shoosmiths.co.uk/client-resources/legal-updates/stamp-duty-land-tax-finance-bill-2013-recent-devts-4994.aspxStamp Duty Land Tax: Finance Bill 2013 - Recent Developments This article summarises the main changes proposed in the draft clauses of the Finance Bill 2013, with particular reference to the transfer of rights (sub-sale) rules. The other main points are: the introduction of reliefs from the 15% charge applying to the acquisition of properties over £2m ('expensive properties') by non-natural persons simplification of rules applying to leases Transfer of rights The transfer of rights rules, which are more commonly known as the sub-sale or assignment rules exist to prevent a double charge to SDLT. They apply where A agrees to sell land to B ('original contract') which is to be completed by a transfer, followed by a sub-sale, assignment or other transaction (relating to the whole or part of the subject-matter of the original contract) as a result of which C becomes entitled to call for a transfer to him ('secondary contract') of the whole or part of the land. Provided the original contract is completed or substantially performed at the same time as the secondary contract, the original contract is ignored for SDLT purposes, with SDLT only payable on the secondary contract. The amount of SDLT is calculated on the consideration given by C to B for the sub-sale/assignment plus whatever remains outstanding under the original contract. As a result of its drafting, this has formed the basis of many of the SDLT avoidance schemes. HMRC has made a number of attempts to close the avoidance possibilities, including the enactment of a general anti-avoidance provision. At the same time it has started taking a number of cases to the tax tribunals to challenge some of the more widely marketed avoidance schemes, with varying degrees of success. As part of its efforts to tighten up avoidance opportunities, HMRC has rewritten the relevant legislation dealing with transfer of rights. The main changes made by the legislation are: the relief is only going to be available for sub-sales and assignments of contracts, subject to the same provisions as before, regarding timing for the intermediary to obtain relief (i.e. B in the above narrative) B has to claim the relief where B and C are connected persons and also where they are not dealing at arm's length, the transaction between B and C is deemed to take place at market value A number of comments can be made about the new rules: the restriction of the relief to sub-sales and assignments means that the more egregious forms of SDLT avoidance, including novations and distributions will no longer qualify for relief; the relief will only apply if it relates to the same interest in the property rather than a derivative interest. For example, if A agrees to sell a freehold to B the grant of a lease from B to C would not qualify. Whilst this is HMRC's professed position on the current legislation, it is not supported by the legislation itself HMRC's view is that only about 1,000 transactions a year will be affected. It is not clear where this figure comes from since there are no statistics to back it up. More profoundly, it is likely to mean that the documentation involving sub-sales and assignments is likely to become considerably more negotiated and complicated. The reason for this is that the intermediate purchaser has to claim the relief. This makes it more likely that both the intermediate purchaser and the ultimate purchaser will want to insert contractual provisions to protect their position to ensure that each qualify for relief and cannot do anything which may affect the other's position the new drafting is long-winded and complex. In practice, it is likely to increase the professional time that has to be spent in ensuring that the requirements for relief to be available are met Reliefs on expensive property The Government has announced that the reliefs available for expensive property will be identical to those which apply to the annual property residential tax (APRT). One anomaly with the APRT is that the reliefs for SDLT will only be available from the date of Royal Assent, likely to be in late July, whereas the identical reliefs for APRT will apply from 1 April. The reliefs that will be available include: properties that are used for letting, trading or being redeveloped properties held by charities for charitable purposes publically owned properties farmhouses occupied by farmers or farm workers Lease simplification measures The main changes are: the abolition of the abnormal rent increase charge with effect from Royal Assent the simplification of the rules dealing with fixed term leases and agreements for lease Conclusion Whilst there are some positive aspects to the reforms these are completely outweighed by the excessive complexity of the revised provisions dealing with transfer of rights, which could have been dealt with in a considerably simpler manner. Given the extensive anti-avoidance legislation in place it is difficult to see the justification for making the provisions on transfer of rights so much more complicated. Tue, 12 Mar 2013 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ This article summarises the main changes proposed in the draft clauses of the Finance Bill 2013, with particular reference to the transfer of rights (sub-sale) rules. The other main points are: the introduction of reliefs from the 15% charge applying to the acquisition of properties over £2m ('expensive properties') by non-natural persons simplification of rules applying to leases Transfer of rights The transfer of rights rules, which are more commonly known as the sub-sale or assignment rules exist to prevent a double charge to SDLT. They apply where A agrees to sell land to B ('original contract') which is to be completed by a transfer, followed by a sub-sale, assignment or other transaction (relating to the whole or part of the subject-matter of the original contract) as a result of which C becomes entitled to call for a transfer to him ('secondary contract') of the whole or part of the land. Provided the original contract is completed or substantially performed at the same time as the secondary contract, the original contract is ignored for SDLT purposes, with SDLT only payable on the secondary contract. The amount of SDLT is calculated on the consideration given by C to B for the sub-sale/assignment plus whatever remains outstanding under the original contract. As a result of its drafting, this has formed the basis of many of the SDLT avoidance schemes. HMRC has made a number of attempts to close the avoidance possibilities, including the enactment of a general anti-avoidance provision. At the same time it has started taking a number of cases to the tax tribunals to challenge some of the more widely marketed avoidance schemes, with varying degrees of success. As part of its efforts to tighten up avoidance opportunities, HMRC has rewritten the relevant legislation dealing with transfer of rights. The main changes made by the legislation are: the relief is only going to be available for sub-sales and assignments of contracts, subject to the same provisions as before, regarding timing for the intermediary to obtain relief (i.e. B in the above narrative) B has to claim the relief where B and C are connected persons and also where they are not dealing at arm's length, the transaction between B and C is deemed to take place at market value A number of comments can be made about the new rules: the restriction of the relief to sub-sales and assignments means that the more egregious forms of SDLT avoidance, including novations and distributions will no longer qualify for relief; the relief will only apply if it relates to the same interest in the property rather than a derivative interest. For example, if A agrees to sell a freehold to B the grant of a lease from B to C would not qualify. Whilst this is HMRC's professed position on the current legislation, it is not supported by the legislation itself HMRC's view is that only about 1,000 transactions a year will be affected. It is not clear where this figure comes from since there are no statistics to back it up. More profoundly, it is likely to mean that the documentation involving sub-sales and assignments is likely to become considerably more negotiated and complicated. The reason for this is that the intermediate purchaser has to claim the relief. This makes it more likely that both the intermediate purchaser and the ultimate purchaser will want to insert contractual provisions to protect their position to ensure that each qualify for relief and cannot do anything which may affect the other's position the new drafting is long-winded and complex. In practice, it is likely to increase the professional time that has to be spent in ensuring that the requirements for relief to be available are met Reliefs on expensive property The Government has announced that the reliefs available for expensive property will be identical to those which apply to the annual property residential tax (APRT). One anomaly with the APRT is that the reliefs for SDLT will only be available from the date of Royal Assent, likely to be in late July, whereas the identical reliefs for APRT will apply from 1 April. The reliefs that will be available include: properties that are used for letting, trading or being redeveloped properties held by charities for charitable purposes publically owned properties farmhouses occupied by farmers or farm workers Lease simplification measures The main changes are: the abolition of the abnormal rent increase charge with effect from Royal Assent the simplification of the rules dealing with fixed term leases and agreements for lease Conclusion Whilst there are some positive aspects to the reforms these are completely outweighed by the excessive complexity of the revised provisions dealing with transfer of rights, which could have been dealt with in a considerably simpler manner. Given the extensive anti-avoidance legislation in place it is difficult to see the justification for making the provisions on transfer of rights so much more complicated. ]]>{F30E809D-2146-4731-B6DD-942C3207A86B}https://www.shoosmiths.co.uk/client-resources/legal-updates/employee-shareholders-the-basics-4907.aspxEmployee shareholders: the basics A new employment status intended to encourage small and medium-sized businesses to take on staff was proposed by the Government last year. Following a short consultation the legislation incorporating the changes is now making its way through Parliament. Introduction Clause 27 of the Growth and Infrastructure Bill 2012-13 (the Bill) currently contains the provisions introducing employee shareholders (originally dubbed "employee owners"). The controversial proposals provide for employees to give up certain employment rights in exchange for shares in their employer. The proposals have been rather unenthusiastically received so far with commentators critical and various questions outstanding about how this will work in practice, for example, what will the position of employee shareholders be on a TUPE transfer? The details The parties will be able to agree that an individual will be engaged as an employee shareholder. This will not be mandatory it will be a matter of choice for the parties, but there will be nothing to stop an employer deciding only to engage staff in this way. To create an employee shareholder arrangement the employer will have to offer a minimum of £2,000 of shares in their company. The market value of the shares will be determined in accordance with the provisions of the Taxation of Chargeable Gains Act 1992 ("TCGA") as their unrestricted market value at the time of issue. Any gains made on the first £50,000 of such shares will be free of capital gains tax. In return the employee will agree to: give up rights in respect of unfair dismissal, redundancy, flexible working, and time off for training; and provide 16 weeks' notice or a firm date of return from maternity or adoption leave (instead of the usual eight). Because of the requirements of European law, there are some significant employment protections left in place for employee shareholders including the right to claim unfair dismissal where the dismissal is automatically unfair or relates to discrimination. In addition, an employee will be protected from detriment and dismissal for refusing to accept an offer from the company to become an employee shareholder. Open issues Regardless of the view one takes of the desirability of an employee giving up fixed employee rights for the uncertainty of share ownership a number of issues remain unclear from the legislation. Market value is to be determined in accordance with the provisions of the TCGA. However, valuation is a notoriously uncertain area. There does not appear to be any pre-valuation check available as there is for Revenue approved share option schemes. A company issuing shares in these circumstances has no guarantee that the requisite minimum value has been issued. If it does not issue sufficient shares, presumably the employee shareholder will continue to be an employee for employment law purposes, but will be faced with an income tax bill (and possibly national insurance) on the value of the shares received. It is not clear what will happen when an employee leaves. There is no restriction on the type of shares that can be paid, so long as they are fully paid. Accordingly, it would be possible for the company to create a class of shares which automatically forfeit except in the event of a third party sale. Given the employee gives up protection against unfair dismissal, there is presumably nothing to stop a company dismissing the employees to whom it has granted shares immediately prior to, say, an exit. We understand that employees will still continue to participate under other tax favoured share incentive/share option plans in addition to the £50,000 employee shareholder plan. There does not appear to be anything preventing shares being issued to senior executives, who may see it as a useful top-up to existing share plans. Conclusion Clause 27 of the Bill will be reconsidered by the House of Lords on 27 February (when further amendments can be put forward for debate) so further changes to the legislation are still a possibility, but given the Government's determination to push this through, seem unlikely. Given the controversy which this measure has generated since its' announcement it will be interesting to see how much of a take-up arises, or whether it will turn out to be a damp squib, like the national insurance holiday for regional businesses. Mon, 25 Feb 2013 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ A new employment status intended to encourage small and medium-sized businesses to take on staff was proposed by the Government last year. Following a short consultation the legislation incorporating the changes is now making its way through Parliament. Introduction Clause 27 of the Growth and Infrastructure Bill 2012-13 (the Bill) currently contains the provisions introducing employee shareholders (originally dubbed "employee owners"). The controversial proposals provide for employees to give up certain employment rights in exchange for shares in their employer. The proposals have been rather unenthusiastically received so far with commentators critical and various questions outstanding about how this will work in practice, for example, what will the position of employee shareholders be on a TUPE transfer? The details The parties will be able to agree that an individual will be engaged as an employee shareholder. This will not be mandatory it will be a matter of choice for the parties, but there will be nothing to stop an employer deciding only to engage staff in this way. To create an employee shareholder arrangement the employer will have to offer a minimum of £2,000 of shares in their company. The market value of the shares will be determined in accordance with the provisions of the Taxation of Chargeable Gains Act 1992 ("TCGA") as their unrestricted market value at the time of issue. Any gains made on the first £50,000 of such shares will be free of capital gains tax. In return the employee will agree to: give up rights in respect of unfair dismissal, redundancy, flexible working, and time off for training; and provide 16 weeks' notice or a firm date of return from maternity or adoption leave (instead of the usual eight). Because of the requirements of European law, there are some significant employment protections left in place for employee shareholders including the right to claim unfair dismissal where the dismissal is automatically unfair or relates to discrimination. In addition, an employee will be protected from detriment and dismissal for refusing to accept an offer from the company to become an employee shareholder. Open issues Regardless of the view one takes of the desirability of an employee giving up fixed employee rights for the uncertainty of share ownership a number of issues remain unclear from the legislation. Market value is to be determined in accordance with the provisions of the TCGA. However, valuation is a notoriously uncertain area. There does not appear to be any pre-valuation check available as there is for Revenue approved share option schemes. A company issuing shares in these circumstances has no guarantee that the requisite minimum value has been issued. If it does not issue sufficient shares, presumably the employee shareholder will continue to be an employee for employment law purposes, but will be faced with an income tax bill (and possibly national insurance) on the value of the shares received. It is not clear what will happen when an employee leaves. There is no restriction on the type of shares that can be paid, so long as they are fully paid. Accordingly, it would be possible for the company to create a class of shares which automatically forfeit except in the event of a third party sale. Given the employee gives up protection against unfair dismissal, there is presumably nothing to stop a company dismissing the employees to whom it has granted shares immediately prior to, say, an exit. We understand that employees will still continue to participate under other tax favoured share incentive/share option plans in addition to the £50,000 employee shareholder plan. There does not appear to be anything preventing shares being issued to senior executives, who may see it as a useful top-up to existing share plans. Conclusion Clause 27 of the Bill will be reconsidered by the House of Lords on 27 February (when further amendments can be put forward for debate) so further changes to the legislation are still a possibility, but given the Government's determination to push this through, seem unlikely. Given the controversy which this measure has generated since its' announcement it will be interesting to see how much of a take-up arises, or whether it will turn out to be a damp squib, like the national insurance holiday for regional businesses. ]]>{CA122296-D1C3-44BE-A420-0AB00BA6A5FD}https://www.shoosmiths.co.uk/client-resources/legal-updates/budget-changes-entrepreneurs-relief-and-emi-options-4631.aspxBudget changes: Entrepreneurs&#39; relief and EMI options The Finance Bill 2013 makes changes to the rules applying entrepreneurs' relief (ER) to the disposal by an employee or officer of a company, on or after 6 April 2013, of shares meeting the requirements of the enterprise management incentive (EMI) scheme. Details ER enables shareholders of companies to sell their shares at a capital gains tax rate of only 10% for lifetime gains of up to £10m. This is in contrast to the normal rate of 28% applying to capital gains. The Finance Bill relaxes the rules relating to ER for shares acquired through EMI options, by disapplying the normal requirement for the seller to hold 5% or more of the shares of the company at the time of disposal. The change applies for shares acquired through EMI options exercised after 5 April 2012. The main requirements for ER to be available for shares acquired under EMI options are: the shares are acquired on or after 6 April 2012 as a result of that person exercising a qualifying option over them the qualifying option had been granted at least one year before the date of the share disposal the individual disposing of the shares must have been an employee or officer of the company (or a company in the same trading group) throughout the year ending with the date of disposal; and the relief is also extended to similar disposals that take place within three years of the company ceasing to be a trading company This represents a useful relaxation of the rules, since most employees with EMI options do not hold enough shares in the company under the normal rules applying to ER to enjoy the relief. If a company is considering granting options to its employees the extension of ER gives another reason for granting options under the EMI rules if possible. This, coupled with the recent increase in the individual EMI limit to £250,000, means that in a lot of cases, EMI options are likely to be the best way for a company to incentivise its staff. Tue, 15 Jan 2013 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ The Finance Bill 2013 makes changes to the rules applying entrepreneurs' relief (ER) to the disposal by an employee or officer of a company, on or after 6 April 2013, of shares meeting the requirements of the enterprise management incentive (EMI) scheme. Details ER enables shareholders of companies to sell their shares at a capital gains tax rate of only 10% for lifetime gains of up to £10m. This is in contrast to the normal rate of 28% applying to capital gains. The Finance Bill relaxes the rules relating to ER for shares acquired through EMI options, by disapplying the normal requirement for the seller to hold 5% or more of the shares of the company at the time of disposal. The change applies for shares acquired through EMI options exercised after 5 April 2012. The main requirements for ER to be available for shares acquired under EMI options are: the shares are acquired on or after 6 April 2012 as a result of that person exercising a qualifying option over them the qualifying option had been granted at least one year before the date of the share disposal the individual disposing of the shares must have been an employee or officer of the company (or a company in the same trading group) throughout the year ending with the date of disposal; and the relief is also extended to similar disposals that take place within three years of the company ceasing to be a trading company This represents a useful relaxation of the rules, since most employees with EMI options do not hold enough shares in the company under the normal rules applying to ER to enjoy the relief. If a company is considering granting options to its employees the extension of ER gives another reason for granting options under the EMI rules if possible. This, coupled with the recent increase in the individual EMI limit to £250,000, means that in a lot of cases, EMI options are likely to be the best way for a company to incentivise its staff. ]]>{DB0C441E-BD52-411E-91AF-45BB2E6EA993}https://www.shoosmiths.co.uk/client-resources/legal-updates/autumn-statement-2012-tax-summary-4346.aspxAutumn Statement 2012: Tax summary The Chancellor delivered the Autumn Statement 2012 on 5 December. This is a summary of the main tax points of interest, with draft legislation enacting the proposed changes scheduled to be published on 11 December: BUSINESS TAXES Corporation Tax - rates: from April 2014, the main rate of corporation tax will be reduced by an additional 1%. Therefore the rate will be reduced from 24% to 23% in April 2013, and then to 21% in April 2014. The small companies rate will remain at 20%. Corporation Tax - reliefs: from April 2013, the Government plans to introduce corporation tax reliefs for the video games, animation and high-end television industries (subject to state aid approval). The reliefs will offer either an additional deduction of 100% of relevant expenditure or a payable tax credit of 25% of qualifying losses surrendered. Corporation Tax and foreign bank levies - the Government will legislate to ensure that, from 1 January 2013, foreign bank levies paid by a foreign banking group trading in the UK cannot be claimed as a deduction against UK corporation tax or income tax. Annual Investment Allowance - for expenditure incurred on or after 1 January 2013, there will be a temporary increase in the Annual Investment Allowance, from £25,000 to £250,000 for a period of two years. Capital Allowances - Wales: enhanced capital allowances will be available at designated sites in the Ebbw Vale and Haven Waterway Enterprise Zones in Wales. Research and development - as announced in the Autumn Statement 2011, the Government plans to introduce an 'above the line' credit for research and development in 2013. Further details are due to follow. Bank Levy - the rate of the Bank Levy will increase to 0.130% from 1 January 2013. PERSONAL TAXES Income tax - personal allowance: from April 2013, the personal allowance will increase by a further £235 to £9,440. Income Tax - higher rate threshold: the Government will increase the higher rate threshold for income tax by 1% (rather than inflation) in 2014-15 and 2015-16. This means that the higher rate threshold will be £41,865 for 2014-15, and £42,285 for 2015-16. Income Tax - capping unlimited reliefs: as announced in Budget 2012, the Government will cap all previously unlimited income tax reliefs (excluding charitable reliefs) at the greater of £50,000 or 25% of the individual's income. National Insurance - the upper earnings limit and upper profits limit will increase in line with the income tax thresholds referred to above. Operational integration of income tax and NICs - formal consultation will only follow once further progress has been made on planned operational changes to the tax system. Capital Gains - annual exemption: this will be increased by 1% in 2014-15 and 2015-16. This means that the annual exemption will be £11,000 for 2014-15 and £11,100 for 2015-16. Inheritance Tax - nil rate band: the inheritance tax nil rate band (currently £325,000) will increase by 1% in 2015-16 to £329,000. Pensions - lifetime allowance: from 2014-15, the lifetime allowance will be reduced from £1.5 million to £1.25 million. Pensions - annual allowance: from 2014-15, the annual allowance will be reduced from £50,000 to £40,000. EMPLOYMENT New 'employee shareholder status' - the Government will introduce a new employee shareholder status giving individual employees a stake in their employer's business. Employee shareholders will have different employment rights and the shares in the employer's business will be worth a minimum of £2,000. From 6 April 2013, gains of up to £50,000 on shares acquired by employee shareholders will be exempt from capital gains tax. The Government is also considering ways to reduce income tax and NICs liabilities on the shares received by employee shareholders. One possibility is for the first £2,000 of shares received to be free of income tax and NI. Employee ownership - following the Nuttall Review's recommendations to support an expansion of employee-owned businesses, the Government is considering incentives to support this objective and will report in the Budget 2013. Company car tax - the Government will consider the case for providing time-limited incentives through company car tax to encourage the purchase of low emission vehicles. Government response to Office of Tax Simplification employee share schemes review - the Government will implement a number of simplifications to employee share schemes. Most of these changes will take effect in 2013. IR35 - the Government is strengthening the existing intermediaries legislation (IR35) to put beyond doubt whether it applies to office holders for tax purposes. PROPERTY Commercial Property - new build: all newly built commercial property completed between 1 October 2013 and 30 September 2016 will be exempt from empty property rates for the first 18 months. Small Business Rate Relief - the temporary doubling of the Small Business Rate Relief Scheme will be extended by a further 12 months from 1 April 2013. VAT Static holiday caravans - from 6 April 2013, a 5% reduced rate of VAT will apply to static holiday caravans and large touring caravans. Hot takeaway food - food remains zero-rated if it is cooling down naturally, provided that it is not heated to order, kept hot, provided in packaging which retains heat or is specifically designed for hot food, or marketed as hot. HMRC AND TAX ADMINISTRATION Tackling offshore tax evasion - the Government plans to tackle offshore tax evasion by creating a dedicated HMRC unit and publishing a strategy in Spring 2013. The Autumn Statement also provides details of the benefits expected from the Government's agreement with Switzerland to recover unpaid UK tax. The agreement is due to come into force in January 2013 and is forecast to bring in £5 billion over the next six years. The Government has also signed an agreement with the US to increase the amount of information on potentially taxable income exchanged between the two countries. The Government will look to conclude similar agreements with other jurisdictions. Tackling tax evasion - the Government plans to tackle tax evasion in a number of ways: introducing the UK's first General Anti-Abuse Rule developing new information disclosure and penalty powers targeted at aggressive tax avoidance schemes closing down loopholes Offshore employment intermediaries - the Government will undertake an internal review of offshore intermediaries being used to avoid tax and NICs. An update will follow in the Budget 2013. Online services - HMRC's online services will be significantly expanded over the next three years. Cost of tax administration - the Government will introduce a target to reduce the annual cost to business of tax administration by £250m by the end of the spending review period. Voluntary cash basis for calculating tax - the new voluntary cash basis for calculating tax will be applied to self-employed businesses with receipts of up to £77,000. These businesses will be able to continue to use the cash basis until receipts reach £154,000. Simplified expenses - unincorporated businesses will be able to use flat rates to calculate some types of expenses rather than having to calculate actual amounts. FATCA - the Government will legislate to implement the UK-US Agreement regarding FATCA (Foreign Account Tax Compliance Act). HMRC powers - the Government will amend HMRC's bulk data-gathering powers to allow it to issue notices to merchant acquirers to identify businesses who are not declaring their full tax liability. Withdrawal of relief for payments of patent royalties - the Government will withdraw the relief for payments of patent royalties by individuals to combat the abuse of the existing rules. OTHER Fuel duty - the Government has cancelled the 3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The 2013-14 increase will be deferred until 1 September 2013. UK natural gas - the Government will consult on the tax regime for shale gas. Gift Aid Small Donations Scheme - as announced in Budget 2011, from April 2013, the Government will introduce a Gift Aid Small Donations Scheme. Following consultation and drafting of legislation, policy adjustments have been made to increase the limit per donation to £20, allow some charities (meeting certain criteria) to access the scheme on more than £5,000 of donations and concerning other elements of Gift Aid. Thu, 06 Dec 2012 00:00:00 Z<![CDATA[Kate Featherstone Tom Wilde ]]><![CDATA[ The Chancellor delivered the Autumn Statement 2012 on 5 December. This is a summary of the main tax points of interest, with draft legislation enacting the proposed changes scheduled to be published on 11 December: BUSINESS TAXES Corporation Tax - rates: from April 2014, the main rate of corporation tax will be reduced by an additional 1%. Therefore the rate will be reduced from 24% to 23% in April 2013, and then to 21% in April 2014. The small companies rate will remain at 20%. Corporation Tax - reliefs: from April 2013, the Government plans to introduce corporation tax reliefs for the video games, animation and high-end television industries (subject to state aid approval). The reliefs will offer either an additional deduction of 100% of relevant expenditure or a payable tax credit of 25% of qualifying losses surrendered. Corporation Tax and foreign bank levies - the Government will legislate to ensure that, from 1 January 2013, foreign bank levies paid by a foreign banking group trading in the UK cannot be claimed as a deduction against UK corporation tax or income tax. Annual Investment Allowance - for expenditure incurred on or after 1 January 2013, there will be a temporary increase in the Annual Investment Allowance, from £25,000 to £250,000 for a period of two years. Capital Allowances - Wales: enhanced capital allowances will be available at designated sites in the Ebbw Vale and Haven Waterway Enterprise Zones in Wales. Research and development - as announced in the Autumn Statement 2011, the Government plans to introduce an 'above the line' credit for research and development in 2013. Further details are due to follow. Bank Levy - the rate of the Bank Levy will increase to 0.130% from 1 January 2013. PERSONAL TAXES Income tax - personal allowance: from April 2013, the personal allowance will increase by a further £235 to £9,440. Income Tax - higher rate threshold: the Government will increase the higher rate threshold for income tax by 1% (rather than inflation) in 2014-15 and 2015-16. This means that the higher rate threshold will be £41,865 for 2014-15, and £42,285 for 2015-16. Income Tax - capping unlimited reliefs: as announced in Budget 2012, the Government will cap all previously unlimited income tax reliefs (excluding charitable reliefs) at the greater of £50,000 or 25% of the individual's income. National Insurance - the upper earnings limit and upper profits limit will increase in line with the income tax thresholds referred to above. Operational integration of income tax and NICs - formal consultation will only follow once further progress has been made on planned operational changes to the tax system. Capital Gains - annual exemption: this will be increased by 1% in 2014-15 and 2015-16. This means that the annual exemption will be £11,000 for 2014-15 and £11,100 for 2015-16. Inheritance Tax - nil rate band: the inheritance tax nil rate band (currently £325,000) will increase by 1% in 2015-16 to £329,000. Pensions - lifetime allowance: from 2014-15, the lifetime allowance will be reduced from £1.5 million to £1.25 million. Pensions - annual allowance: from 2014-15, the annual allowance will be reduced from £50,000 to £40,000. EMPLOYMENT New 'employee shareholder status' - the Government will introduce a new employee shareholder status giving individual employees a stake in their employer's business. Employee shareholders will have different employment rights and the shares in the employer's business will be worth a minimum of £2,000. From 6 April 2013, gains of up to £50,000 on shares acquired by employee shareholders will be exempt from capital gains tax. The Government is also considering ways to reduce income tax and NICs liabilities on the shares received by employee shareholders. One possibility is for the first £2,000 of shares received to be free of income tax and NI. Employee ownership - following the Nuttall Review's recommendations to support an expansion of employee-owned businesses, the Government is considering incentives to support this objective and will report in the Budget 2013. Company car tax - the Government will consider the case for providing time-limited incentives through company car tax to encourage the purchase of low emission vehicles. Government response to Office of Tax Simplification employee share schemes review - the Government will implement a number of simplifications to employee share schemes. Most of these changes will take effect in 2013. IR35 - the Government is strengthening the existing intermediaries legislation (IR35) to put beyond doubt whether it applies to office holders for tax purposes. PROPERTY Commercial Property - new build: all newly built commercial property completed between 1 October 2013 and 30 September 2016 will be exempt from empty property rates for the first 18 months. Small Business Rate Relief - the temporary doubling of the Small Business Rate Relief Scheme will be extended by a further 12 months from 1 April 2013. VAT Static holiday caravans - from 6 April 2013, a 5% reduced rate of VAT will apply to static holiday caravans and large touring caravans. Hot takeaway food - food remains zero-rated if it is cooling down naturally, provided that it is not heated to order, kept hot, provided in packaging which retains heat or is specifically designed for hot food, or marketed as hot. HMRC AND TAX ADMINISTRATION Tackling offshore tax evasion - the Government plans to tackle offshore tax evasion by creating a dedicated HMRC unit and publishing a strategy in Spring 2013. The Autumn Statement also provides details of the benefits expected from the Government's agreement with Switzerland to recover unpaid UK tax. The agreement is due to come into force in January 2013 and is forecast to bring in £5 billion over the next six years. The Government has also signed an agreement with the US to increase the amount of information on potentially taxable income exchanged between the two countries. The Government will look to conclude similar agreements with other jurisdictions. Tackling tax evasion - the Government plans to tackle tax evasion in a number of ways: introducing the UK's first General Anti-Abuse Rule developing new information disclosure and penalty powers targeted at aggressive tax avoidance schemes closing down loopholes Offshore employment intermediaries - the Government will undertake an internal review of offshore intermediaries being used to avoid tax and NICs. An update will follow in the Budget 2013. Online services - HMRC's online services will be significantly expanded over the next three years. Cost of tax administration - the Government will introduce a target to reduce the annual cost to business of tax administration by £250m by the end of the spending review period. Voluntary cash basis for calculating tax - the new voluntary cash basis for calculating tax will be applied to self-employed businesses with receipts of up to £77,000. These businesses will be able to continue to use the cash basis until receipts reach £154,000. Simplified expenses - unincorporated businesses will be able to use flat rates to calculate some types of expenses rather than having to calculate actual amounts. FATCA - the Government will legislate to implement the UK-US Agreement regarding FATCA (Foreign Account Tax Compliance Act). HMRC powers - the Government will amend HMRC's bulk data-gathering powers to allow it to issue notices to merchant acquirers to identify businesses who are not declaring their full tax liability. Withdrawal of relief for payments of patent royalties - the Government will withdraw the relief for payments of patent royalties by individuals to combat the abuse of the existing rules. OTHER Fuel duty - the Government has cancelled the 3.02 pence per litre fuel duty increase that was planned for 1 January 2013. The 2013-14 increase will be deferred until 1 September 2013. UK natural gas - the Government will consult on the tax regime for shale gas. Gift Aid Small Donations Scheme - as announced in Budget 2011, from April 2013, the Government will introduce a Gift Aid Small Donations Scheme. Following consultation and drafting of legislation, policy adjustments have been made to increase the limit per donation to £20, allow some charities (meeting certain criteria) to access the scheme on more than £5,000 of donations and concerning other elements of Gift Aid. ]]>{0277D1D3-1EE0-4266-92B4-45DF44661CC6}https://www.shoosmiths.co.uk/client-resources/legal-updates/transfer-of-a-business-as-a-going-concern-4325.aspxTransfer of a business as a going concern: Change of practice by Revenue Following the Tax Tribunal's decision in the case of Robinson Family Limited, the Revenue has decided not to appeal. Detail You may recall our earlier article, Transfer of a business as an ongoing concern, where we addressed the Tax Tribunal's decision in detail. Instead of appealing the decision, the Revenue has instead issued a new Business Brief (30/12) setting out their revised practice in relation to transfer of a business as a going concern (TOGCs), as it applies to property transactions. When the assets of a business (or part of a business) are transferred as a going concern, subject to certain conditions, no supply of those assets takes place for VAT purposes. For this to happen, the purchaser must have the intention of using those assets to carry on the same kind of business as the seller. This is equally the case where the business is that of property development or property rental, and the asset sold is the property, but it can sometimes be less clear when a business is being transferred in these situations. HMRC has always interpreted the law as meaning that, for there to be the transfer of a property rental or property development business as a going concern (TOGC), the interest in land being transferred must be the same interest as that used by the transferor in his business. It followed from this interpretation that, if what was transferred was less than the transferor's full interest in the land, then the retained interest would prevent there having been the transfer of a property business as a going concern. For example, HMRC's guidance says that where a freeholder grants a 999 year lease the freeholder's business is not transferred as a going concern because of the interest retained. In its decision in the case of Robinson Family Limited, the Tax Tribunal disagreed with this interpretation of the law in the facts of that case. What this means In light of the Tribunal's decision in the Robinson Family case, HMRC accepts that the fact that the transferor of a property rental business retains a small reversionary interest in the property transferred does not prevent the transaction from being treated as a TOGC for VAT purposes. Provided the interest retained is small enough not to disturb the substance of the transaction, the transaction will be a TOGC if the usual conditions are satisfied. HMRC is reviewing its policy on whether the surrender of an interest in land can sometimes result in a TOGC. HMRC is also reviewing whether properties which are used in a business other than property letting are affected by this change of policy. HMRC will accept that a reversion retained by the transferor is sufficiently small for TOGC treatment to be capable of applying if the value of the interest retained is no more than 1% of the value of the property immediately before the transfer (disregarding any mortgage or charge). Where more than one property is transferred at one time, this test has to be applied on a property by property basis rather than for the entire portfolio. If the interest retained by the transferor represents more than 1% of the value of the property, HMRC will regard that as strongly indicative that the transaction is too complex to be a TOGC. Impact of the decision on earlier transactions It will have been the case that purchasers will have accounted for VAT and SDLT on a transaction not treated as a TOGC because of the Revenue's practice. One of the requirements for a transaction being treated as a TOGC is that the relevant notification under Article 5(2B) of the VAT (Special Provisions) Order 1995 that an option to tax will not be rendered ineffective, will not have been given by the buyer to the seller. HMRC will accept that provided the parties can satisfactorily evidence that Article 5(2B) did not apply at the time of the transaction and thus the requisite notification could have been given, that it will accept that the legal requirement has been complied with. The Revenue is currently considering whether an adjustment can be made to the SDLT already paid. It has announced that it will provide further guidance on it soon. This would seem a relatively straight-forward point since under the SDLT legislation a taxpayer has up to four years after the effective date of the transaction to make a repayment claim. Wed, 05 Dec 2012 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ Following the Tax Tribunal's decision in the case of Robinson Family Limited, the Revenue has decided not to appeal. Detail You may recall our earlier article, Transfer of a business as an ongoing concern, where we addressed the Tax Tribunal's decision in detail. Instead of appealing the decision, the Revenue has instead issued a new Business Brief (30/12) setting out their revised practice in relation to transfer of a business as a going concern (TOGCs), as it applies to property transactions. When the assets of a business (or part of a business) are transferred as a going concern, subject to certain conditions, no supply of those assets takes place for VAT purposes. For this to happen, the purchaser must have the intention of using those assets to carry on the same kind of business as the seller. This is equally the case where the business is that of property development or property rental, and the asset sold is the property, but it can sometimes be less clear when a business is being transferred in these situations. HMRC has always interpreted the law as meaning that, for there to be the transfer of a property rental or property development business as a going concern (TOGC), the interest in land being transferred must be the same interest as that used by the transferor in his business. It followed from this interpretation that, if what was transferred was less than the transferor's full interest in the land, then the retained interest would prevent there having been the transfer of a property business as a going concern. For example, HMRC's guidance says that where a freeholder grants a 999 year lease the freeholder's business is not transferred as a going concern because of the interest retained. In its decision in the case of Robinson Family Limited, the Tax Tribunal disagreed with this interpretation of the law in the facts of that case. What this means In light of the Tribunal's decision in the Robinson Family case, HMRC accepts that the fact that the transferor of a property rental business retains a small reversionary interest in the property transferred does not prevent the transaction from being treated as a TOGC for VAT purposes. Provided the interest retained is small enough not to disturb the substance of the transaction, the transaction will be a TOGC if the usual conditions are satisfied. HMRC is reviewing its policy on whether the surrender of an interest in land can sometimes result in a TOGC. HMRC is also reviewing whether properties which are used in a business other than property letting are affected by this change of policy. HMRC will accept that a reversion retained by the transferor is sufficiently small for TOGC treatment to be capable of applying if the value of the interest retained is no more than 1% of the value of the property immediately before the transfer (disregarding any mortgage or charge). Where more than one property is transferred at one time, this test has to be applied on a property by property basis rather than for the entire portfolio. If the interest retained by the transferor represents more than 1% of the value of the property, HMRC will regard that as strongly indicative that the transaction is too complex to be a TOGC. Impact of the decision on earlier transactions It will have been the case that purchasers will have accounted for VAT and SDLT on a transaction not treated as a TOGC because of the Revenue's practice. One of the requirements for a transaction being treated as a TOGC is that the relevant notification under Article 5(2B) of the VAT (Special Provisions) Order 1995 that an option to tax will not be rendered ineffective, will not have been given by the buyer to the seller. HMRC will accept that provided the parties can satisfactorily evidence that Article 5(2B) did not apply at the time of the transaction and thus the requisite notification could have been given, that it will accept that the legal requirement has been complied with. The Revenue is currently considering whether an adjustment can be made to the SDLT already paid. It has announced that it will provide further guidance on it soon. This would seem a relatively straight-forward point since under the SDLT legislation a taxpayer has up to four years after the effective date of the transaction to make a repayment claim. ]]>{529AF781-9BC1-4CE7-ADFD-94BCAEEFCA69}https://www.shoosmiths.co.uk/client-resources/legal-updates/disclosure-of-tax-avoidance-schemes-revised-guidance-4322.aspxDisclosure of tax avoidance schemes: Revised guidance The Revenue has recently published revised guidance on the disclosure of tax avoidance schemes. The guidance applies from 1 November and replaces all previous guidance. This guidance has been updated to reflect legislative changes in relation to the disclosure of Stamp Duty Land Tax Schemes, which came into force on 1 November 2012, and the consolidation of the regulations relating to National Insurance Contributions (NIC). Detail of Main Changes The rules for disclosing hallmarked NIC schemes now mirror those that apply to income tax hallmarked schemes with some minor differences explained in the relevant paragraphs of the guidance. Where there is both a NIC advantage and an income tax advantage, only one disclosure need be made but it must identify both advantages. From 1 November 2012 the descriptions of stamp duty land tax arrangements required to be disclosed were extended so that they now cover schemes intended to be used for non-residential and/or residential property of any value, subject to the following exceptions: Arrangements that were first made available for implementation before 1 April 2010 unless those arrangements fall within what are referred to as the 'transfer of rights rules'. The transfer of rights rules are relieving provisions of the SDLT legislation which have been widely used in SDLT avoidance schemes Arrangements falling within a 'white list', which includes the single use of a number of statutory reliefs With effect from 1 November 2012, the normal rule that a promoter has to disclose a scheme only once (unless it changes substantially), is overridden where: The scheme falls within certain descriptions It was disclosed before 1 April 2010 so as to require one further disclosure if the promoter continues to sell the scheme. The purpose of this change is to enable the scheme to be issued with a scheme reference number so that its users are identified. The reason for this change appears to be that despite their best efforts the Revenue is still trying to catch up with the multiplicity of SDLT schemes, which are still in use. Conclusion This is a reminder of the need to ensure that you comply with the Revenue's disclosure requirements, particularly in light of the fact that failure to comply can result in significant financial penalties both for promoters of tax avoidance schemes and their users. Tue, 04 Dec 2012 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ The Revenue has recently published revised guidance on the disclosure of tax avoidance schemes. The guidance applies from 1 November and replaces all previous guidance. This guidance has been updated to reflect legislative changes in relation to the disclosure of Stamp Duty Land Tax Schemes, which came into force on 1 November 2012, and the consolidation of the regulations relating to National Insurance Contributions (NIC). Detail of Main Changes The rules for disclosing hallmarked NIC schemes now mirror those that apply to income tax hallmarked schemes with some minor differences explained in the relevant paragraphs of the guidance. Where there is both a NIC advantage and an income tax advantage, only one disclosure need be made but it must identify both advantages. From 1 November 2012 the descriptions of stamp duty land tax arrangements required to be disclosed were extended so that they now cover schemes intended to be used for non-residential and/or residential property of any value, subject to the following exceptions: Arrangements that were first made available for implementation before 1 April 2010 unless those arrangements fall within what are referred to as the 'transfer of rights rules'. The transfer of rights rules are relieving provisions of the SDLT legislation which have been widely used in SDLT avoidance schemes Arrangements falling within a 'white list', which includes the single use of a number of statutory reliefs With effect from 1 November 2012, the normal rule that a promoter has to disclose a scheme only once (unless it changes substantially), is overridden where: The scheme falls within certain descriptions It was disclosed before 1 April 2010 so as to require one further disclosure if the promoter continues to sell the scheme. The purpose of this change is to enable the scheme to be issued with a scheme reference number so that its users are identified. The reason for this change appears to be that despite their best efforts the Revenue is still trying to catch up with the multiplicity of SDLT schemes, which are still in use. Conclusion This is a reminder of the need to ensure that you comply with the Revenue's disclosure requirements, particularly in light of the fact that failure to comply can result in significant financial penalties both for promoters of tax avoidance schemes and their users. ]]>{9ACE0D8C-D482-4089-8DC2-FCA825B17C1A}https://www.shoosmiths.co.uk/client-resources/legal-updates/empty-properties-rates-reliefs-further-thoughts-4244.aspxEmpty properties rates reliefs: further thoughts There has been a further decision considering the effectiveness of arrangements entered into by property owners for the purposes of mitigating the effect of the rates charged on empty properties. In an earlier article on Landlords' relief over empty rates ruling, we commented on the High Court decision of Makro Property Limited v Nuneaton Borough Council concerning the availability of empty rates relief. This note considers the later decision and its consequences, given the fact that there are a number of empty property rates schemes in the market. Background From 1 April 2008, industrial properties, including warehouses, receive full relief from rates for only six months, after which business rates are payable in full (unless the property qualifies for relief on other grounds). Previously, such properties received full relief from business rates for as long as they remained unoccupied. For other commercial properties the relief is reduced to just three months. Previously, such properties received full relief from business rates for three months, following which they received 50% relief for as long as they remained unoccupied. Companies in administration are exempt from rates in respect of their empty properties (freehold and leasehold) for the whole period of the administration (adding to the existing exemption for companies in liquidation and bankrupt individuals). Charities and community amateur sports clubs qualify for permanent 100% relief from business rates for their empty properties if it appears that the properties, when next used, will be used for charitable purposes or by a community amateur sports club. Previously such entities were liable to pay 10% of full rates or a lesser figure at the local authority's discretion. As a result of these changes, property owners have entered into various arrangements for the purposes of mitigating the effect of these changes. Recent cases In the Makro case, the High Court held that the temporary storage of documents occupying only 0.2% of a warehouse's floor space was actual occupation for the purposes of business rates liability. This meant that a new period of empty rates relief applied when that occupation ended. A second High Court case - Preston City Council v Oyston Angel Charity - concerned section 45A(2) of the Local Government Finance Act 1988, which provides for property to be zero-rated for non-domestic rates where the property is empty; the owner is a charity; and it appears that, when the property is reoccupied, it will be wholly or mainly used for charitable purposes (whether of that charity, or of that and other charities). The court held that the words in brackets mean that 'when next in use the property will be wholly or mainly used for the charitable objects of the owning charity, accompanied or not by other charitable purposes'. There was no requirement, as argued by the rating authority, for the premises to be wholly or mainly used by the owning charity for charitable purposes. Conclusion While the court's decision is not surprising, it is easy to understand the local authority's motivation for seeking to establish an interpretation of the rules that would deny business rates zero-rating to charities that lease or licence premises, but have no intention of occupying them. Given concerns raised by local authorities about the loss of rating income and of the Charity Commission about the involvement of charities in such arrangements, it will be interesting to see whether changes are made to the law in this area. Currently, there is no general anti-avoidance rule that applies to arrangements designed solely to avoid or reduce rates, although it appears that in the Oyston case, a Furniss v Dawson argument was raised. Pressure for change is likely to be exacerbated by the number of schemes that have appeared on the market designed to secure empty rates relief by putting in place arrangements for the temporary occupation of property by third parties so as to secure an additional six-month rates' holiday. Fri, 09 Nov 2012 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ There has been a further decision considering the effectiveness of arrangements entered into by property owners for the purposes of mitigating the effect of the rates charged on empty properties. In an earlier article on Landlords' relief over empty rates ruling, we commented on the High Court decision of Makro Property Limited v Nuneaton Borough Council concerning the availability of empty rates relief. This note considers the later decision and its consequences, given the fact that there are a number of empty property rates schemes in the market. Background From 1 April 2008, industrial properties, including warehouses, receive full relief from rates for only six months, after which business rates are payable in full (unless the property qualifies for relief on other grounds). Previously, such properties received full relief from business rates for as long as they remained unoccupied. For other commercial properties the relief is reduced to just three months. Previously, such properties received full relief from business rates for three months, following which they received 50% relief for as long as they remained unoccupied. Companies in administration are exempt from rates in respect of their empty properties (freehold and leasehold) for the whole period of the administration (adding to the existing exemption for companies in liquidation and bankrupt individuals). Charities and community amateur sports clubs qualify for permanent 100% relief from business rates for their empty properties if it appears that the properties, when next used, will be used for charitable purposes or by a community amateur sports club. Previously such entities were liable to pay 10% of full rates or a lesser figure at the local authority's discretion. As a result of these changes, property owners have entered into various arrangements for the purposes of mitigating the effect of these changes. Recent cases In the Makro case, the High Court held that the temporary storage of documents occupying only 0.2% of a warehouse's floor space was actual occupation for the purposes of business rates liability. This meant that a new period of empty rates relief applied when that occupation ended. A second High Court case - Preston City Council v Oyston Angel Charity - concerned section 45A(2) of the Local Government Finance Act 1988, which provides for property to be zero-rated for non-domestic rates where the property is empty; the owner is a charity; and it appears that, when the property is reoccupied, it will be wholly or mainly used for charitable purposes (whether of that charity, or of that and other charities). The court held that the words in brackets mean that 'when next in use the property will be wholly or mainly used for the charitable objects of the owning charity, accompanied or not by other charitable purposes'. There was no requirement, as argued by the rating authority, for the premises to be wholly or mainly used by the owning charity for charitable purposes. Conclusion While the court's decision is not surprising, it is easy to understand the local authority's motivation for seeking to establish an interpretation of the rules that would deny business rates zero-rating to charities that lease or licence premises, but have no intention of occupying them. Given concerns raised by local authorities about the loss of rating income and of the Charity Commission about the involvement of charities in such arrangements, it will be interesting to see whether changes are made to the law in this area. Currently, there is no general anti-avoidance rule that applies to arrangements designed solely to avoid or reduce rates, although it appears that in the Oyston case, a Furniss v Dawson argument was raised. Pressure for change is likely to be exacerbated by the number of schemes that have appeared on the market designed to secure empty rates relief by putting in place arrangements for the temporary occupation of property by third parties so as to secure an additional six-month rates' holiday. ]]>{0F516E53-DD5F-4A4B-A2A9-FADE7283E9E9}https://www.shoosmiths.co.uk/client-resources/legal-updates/possible-refunds-of-vat-and-sdlt-4125.aspxPossible refunds of VAT and SDLT - Transfer of a business as a going concern The First-tier Tribunal (tribunal) has held that VAT transfer as a going concern (TOGC) treatment was available where the appellant had to sell its interest in property by way of sub-lease, rather than assigning its interest in the head lease. This is due to alienation restrictions in that head lease. The tribunal looked to the substance of the transaction, rather than its legal form, and found that the transferee could carry on the same letting business as the transferor without restriction. The asset in the case of Robinson Family Ltd v HMRC [2012] UK FTT 360 was the right to use the property in the same way, and to the same extent, as the transferor, notwithstanding that, technically, a new asset had been created rather than the existing one being transferred. Analysis The decision overturns long-standing published Revenue practice. The Revenue has always taken the view that where a new asset is created (in this case, the grant of a lease) there cannot be a "transfer". The key question posed by the Tribunal was whether the transferee is effectively in the same position as the transferor in terms of the business that it carries out, regardless of the legal form of the interest held. What appears to be determinative is whether the transferee can do everything that the transferor does. The Tribunal considered that very small differences (such as the appellant's three-day reversionary interest in this case) would not be fatal, but it would be advisable for the transferee to ensure that its rights mimic those of the transferor as closely as possible. This decision should open up the possibility of TOGC treatment to those parties that are unable to replicate the technical, legal form of the transferor's interest in transferred property due to restrictions placed on alienation by the transferor by a person with a superior interest. Future Transactions Clearly, it will be advisable where possible, to continue following the Revenue's practice as regarding TOGCs. However, where it is not possible because, for example, of restrictions effecting the land interest consideration should be given to mimicing the existing land interest as closely as possible. Tax Refund If you have been involved in similar circumstances within the last four years it may be worth putting in a VAT refund claim on the basis that no VAT due. If this is accepted it will also be worthwhile to put in a refund claim for overpaid SDLT. Wed, 17 Oct 2012 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ The First-tier Tribunal (tribunal) has held that VAT transfer as a going concern (TOGC) treatment was available where the appellant had to sell its interest in property by way of sub-lease, rather than assigning its interest in the head lease. This is due to alienation restrictions in that head lease. The tribunal looked to the substance of the transaction, rather than its legal form, and found that the transferee could carry on the same letting business as the transferor without restriction. The asset in the case of Robinson Family Ltd v HMRC [2012] UK FTT 360 was the right to use the property in the same way, and to the same extent, as the transferor, notwithstanding that, technically, a new asset had been created rather than the existing one being transferred. Analysis The decision overturns long-standing published Revenue practice. The Revenue has always taken the view that where a new asset is created (in this case, the grant of a lease) there cannot be a "transfer". The key question posed by the Tribunal was whether the transferee is effectively in the same position as the transferor in terms of the business that it carries out, regardless of the legal form of the interest held. What appears to be determinative is whether the transferee can do everything that the transferor does. The Tribunal considered that very small differences (such as the appellant's three-day reversionary interest in this case) would not be fatal, but it would be advisable for the transferee to ensure that its rights mimic those of the transferor as closely as possible. This decision should open up the possibility of TOGC treatment to those parties that are unable to replicate the technical, legal form of the transferor's interest in transferred property due to restrictions placed on alienation by the transferor by a person with a superior interest. Future Transactions Clearly, it will be advisable where possible, to continue following the Revenue's practice as regarding TOGCs. However, where it is not possible because, for example, of restrictions effecting the land interest consideration should be given to mimicing the existing land interest as closely as possible. Tax Refund If you have been involved in similar circumstances within the last four years it may be worth putting in a VAT refund claim on the basis that no VAT due. If this is accepted it will also be worthwhile to put in a refund claim for overpaid SDLT. ]]>{BDE43113-2234-4AAA-B839-A4E7FF029CE7}https://www.shoosmiths.co.uk/client-resources/legal-updates/death-knell-for-sdlt-planning-4135.aspxIs this the death knell for SDLT planning? The First-tier Tax Tribunal's decision in the case of Vardy Properties (Teesside) Limited and Others v HMRC (2012 UKFTT 564 TC) delivered what HMRC hopes will be a knockout blow in its fight against SDLT avoidance. The case concerned a widely marketed SDLT scheme involving the use of sub-sale relief. Perhaps one of the most significant aspects of this case is that the court was considering the position before the introduction of the wide anti-avoidance legislation. Background Vardy Properties (Teesside) Limited ('P') wished to acquire a property for £7.25m from V.V. Stockton LP ('V') without paying SDLT. To do so, it entered into the following transactions: P incorporated a wholly-owned unlimited company subsidiary, Vardy Properties Limited ('SP') with an initial share capital of £2 P then subscribed for £7.4m worth of new ordinary shares in SP SP contracted with V to buy the property for £7.25m and paid a 10% deposit SP then resolved at an extra-ordinary general meeting to reduce its share capital from £7,400,002 to £1,000 Shortly afterwards the shareholders of SP approved a distribution in specie of the property as a final dividend to P, subject to completion of its purchase from V Several days later, SP completed the purchase of the property from V and distributed it by way of final dividend to P Tax issues The argument advanced by the taxpayer was that the combined steps fell within the sub-sale provisions set out in section 45 Finance Act 2003. Accordingly, the intermediate step of the sale between V and SP was ignored for SDLT purposes, and the dividend of the property from SP to P fell outside the scope of SDLT, because there was no consideration. HMRC challenged the Vardy relief claim on two main grounds. The first, interestingly enough, was based on a company law argument. This was that SP had not satisfied the company law requirements for paying a dividend because of its failure to produce interim accounts. The tribunal accepted that SP had failed to meet the company law requirements, and that accordingly, P never became entitled to call for the property, which is a pre-requisite for s. 45(3) to be engaged. The tribunal noted that if the company law requirements had been met it would have found that the requirements for sub-sale relief had been met. The second argument - to be used if the first argument failed - was that P had indirectly paid for the property by means of its share subscription to its subsidiary. Thus, it had acquired the property for a consideration and was liable for SDLT on that consideration. The tribunal accepted the second argument, noting that s45(3)(b)(i) of the Finance Act 2003 refers to a 'consideration under the original contract.to be given (directly or indirectly) by the transferee'. It regarded the amount subscribed by P for its shares as being consideration given indirectly for the property. Conclusion As well as shedding some useful light on HMRC's interpretation of certain aspects of the SDLT legislation, the main significance of the case is in the broad interpretation of the way the tribunal is prepared to analyse the consideration given under the secondary contract. Thus, whilst other types of sub-sale planning may not fail on the company law errors identified in the decision, the fact that many other forms of SDLT planning rely on a perhaps narrower interpretation of section 45(3) means that these must also be at risk. Wed, 17 Oct 2012 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ The First-tier Tax Tribunal's decision in the case of Vardy Properties (Teesside) Limited and Others v HMRC (2012 UKFTT 564 TC) delivered what HMRC hopes will be a knockout blow in its fight against SDLT avoidance. The case concerned a widely marketed SDLT scheme involving the use of sub-sale relief. Perhaps one of the most significant aspects of this case is that the court was considering the position before the introduction of the wide anti-avoidance legislation. Background Vardy Properties (Teesside) Limited ('P') wished to acquire a property for £7.25m from V.V. Stockton LP ('V') without paying SDLT. To do so, it entered into the following transactions: P incorporated a wholly-owned unlimited company subsidiary, Vardy Properties Limited ('SP') with an initial share capital of £2 P then subscribed for £7.4m worth of new ordinary shares in SP SP contracted with V to buy the property for £7.25m and paid a 10% deposit SP then resolved at an extra-ordinary general meeting to reduce its share capital from £7,400,002 to £1,000 Shortly afterwards the shareholders of SP approved a distribution in specie of the property as a final dividend to P, subject to completion of its purchase from V Several days later, SP completed the purchase of the property from V and distributed it by way of final dividend to P Tax issues The argument advanced by the taxpayer was that the combined steps fell within the sub-sale provisions set out in section 45 Finance Act 2003. Accordingly, the intermediate step of the sale between V and SP was ignored for SDLT purposes, and the dividend of the property from SP to P fell outside the scope of SDLT, because there was no consideration. HMRC challenged the Vardy relief claim on two main grounds. The first, interestingly enough, was based on a company law argument. This was that SP had not satisfied the company law requirements for paying a dividend because of its failure to produce interim accounts. The tribunal accepted that SP had failed to meet the company law requirements, and that accordingly, P never became entitled to call for the property, which is a pre-requisite for s. 45(3) to be engaged. The tribunal noted that if the company law requirements had been met it would have found that the requirements for sub-sale relief had been met. The second argument - to be used if the first argument failed - was that P had indirectly paid for the property by means of its share subscription to its subsidiary. Thus, it had acquired the property for a consideration and was liable for SDLT on that consideration. The tribunal accepted the second argument, noting that s45(3)(b)(i) of the Finance Act 2003 refers to a 'consideration under the original contract.to be given (directly or indirectly) by the transferee'. It regarded the amount subscribed by P for its shares as being consideration given indirectly for the property. Conclusion As well as shedding some useful light on HMRC's interpretation of certain aspects of the SDLT legislation, the main significance of the case is in the broad interpretation of the way the tribunal is prepared to analyse the consideration given under the secondary contract. Thus, whilst other types of sub-sale planning may not fail on the company law errors identified in the decision, the fact that many other forms of SDLT planning rely on a perhaps narrower interpretation of section 45(3) means that these must also be at risk. ]]>{FE0A0315-5F58-4B14-831C-56B27E390B3C}https://www.shoosmiths.co.uk/client-resources/legal-updates/high-value-residential-development-an-update-2218.aspxHigh value residential development: An update As discussed in our earlier article, the Government launched an attack in Budget 2012 on high-value residential property and perceived tax avoidance Further details have since been published. Whilst the new SDLT rates - 7% (for residential properties worth over £2m) and 15% (for residential properties over £2m acquired by companies, certain partnerships and collective investment schemes) - came into force immediately, other measures such as the new 'annual charge' and the extension of capital gains tax (CGT) to certain non-resident, non-natural persons will be enacted in Finance Bill 2013, with draft legislation published this Autumn. It is these later measures on which the Government has published a consultation document, entitled 'Ensuring the fair taxation of residential property transactions'. The title demonstrates yet again that the Government is moving away from whether something is legal or illegal being the test for whether tax is due, to a determination based on 'morality' or 'fairness'. The aim of these new measures, like the new 15% SDLT rate, is to deter 'enveloping', i.e. the purchase of high value property by a company (usually a special purpose vehicle) and then transferring the ownership of the property in the future by selling the shares in the SPV rather than the property itself, with the result that stamp duty is paid at 0.5% rather than SDLT at, now, 7%. Annual charge The annual charge is payable by non-natural persons, i.e. companies and other bodies corporate, collective investment vehicles and partnerships with one or more such entities as partners. One of the major criticisms at the time of Budget 2012 was that there are many other reasons, apart from tax avoidance, why someone may want to buy property through a company, e.g. maintaining anonymity, inheritance tax planning, protecting ownership, or to comply with laws in overseas jurisdictions. Therefore the Government's stated aim is to target the annual charge at situations where tax avoidance is a significant factor whilst minimising the impact for bona fide businesses. The current exclusion for bona fide property development businesses only applies where the property was purchased with the intention of re-development and re-sale by a business which has been operating for a minimum of two years. Concerns have been raised about the narrowness of this exclusion and so the Government is requesting views as to how bona fide businesses can be unaffected whilst targeting tax avoidance. Whether this can be done satisfactorily remains doubtful. The charge applies to residential property as well as the residential elements of a mixed-used property (in the same way that the new 15% SDLT rate does). If the property is only owned by a relevant non-natural person for part of a year, then the charge is applied pro-rata. The value of the property relevant for determining whether the charge applies and the amount of the charge is: the market value of the property interest on 1 April 2012 (if the property was owned at that date) the market value on acquisition, if later; or the market value on any later creation or cessation of a relevant subordinate property interest Properties will be revalued every five years and, as the charge is self-assessed, HMRC will expect to see a valuation obtained by a taxpayer from a suitably qualified valuer with penalties imposed for getting it wrong. However to mitigate this it is currently suggested that HMRC and the Valuation Office Agency will offer a pre-return valuation checking service. The rate of the annual charge is currently proposed as follows: Property Value Annual Charge 2012-13 £2,000,001 - £5,000,000 £5,000,001 - £10,000,000 £10,000,001 - £20,000,000 £20,000,001+ Annual Charge 2012-13 £15,000 £35,000 £70,000 £140,000 Given the 'cliff-edge' nature of the charge, taxpayers can expect HMRC to look closely at any valuations which fall near the band margins. The annual charge will be linked to the CPI and uprated in April each year based upon the previous September's CPI. Whether the rates of charge are high enough to persuade people to remove property from companies and other envelopes remains to be seen. Extension of CGT The aim of the extension is "to support the annual charge by creating a further deterrent to enveloping and to create more equal tax treatment between UK residents and non-residents." This will again apply to residential property worth over £2m held by non-resident, non-natural persons. However the definition of non-natural persons for CGT purposes appears to be wider than that for the annual charge as it encompasses trustees and personal representatives. It remains to be seen how this will be resolved. CGT will not just apply to gains made on the disposal of the property itself, but also to gains on the disposal of assets that directly or indirectly represent relevant UK residential property, e.g. shares, interests or securities in a property-owning company where more than 50% of the value of the asset is derived from UK residential property. One key point to note is that the CGT extension will apply to the total gain accrued during the period of ownership, not just the portion of the gain accrued from the date that the new legislation comes into force. This means that existing trust and company structures will either need to be wound up or restructured in order to establish an up to date base cost. There are a number of possibilities which can provide a solution and it is not entirely clear how HMRC will enforce the charge, although hopefully this will be made clear in the legislation. Conclusion As these changes are still the subject of consultation they may change before implementation. However they give a strong indication of the Government's thinking. Anyone who is likely to be adversely affected by these changes is encouraged to respond to the consultation before it closes on 23 August 2012. Should the proposals be enacted in their current form, enveloping high value residential property will become much more expensive in the future. Mon, 25 Jun 2012 00:00:00 +0100<![CDATA[Tom Wilde ]]><![CDATA[ As discussed in our earlier article, the Government launched an attack in Budget 2012 on high-value residential property and perceived tax avoidance Further details have since been published. Whilst the new SDLT rates - 7% (for residential properties worth over £2m) and 15% (for residential properties over £2m acquired by companies, certain partnerships and collective investment schemes) - came into force immediately, other measures such as the new 'annual charge' and the extension of capital gains tax (CGT) to certain non-resident, non-natural persons will be enacted in Finance Bill 2013, with draft legislation published this Autumn. It is these later measures on which the Government has published a consultation document, entitled 'Ensuring the fair taxation of residential property transactions'. The title demonstrates yet again that the Government is moving away from whether something is legal or illegal being the test for whether tax is due, to a determination based on 'morality' or 'fairness'. The aim of these new measures, like the new 15% SDLT rate, is to deter 'enveloping', i.e. the purchase of high value property by a company (usually a special purpose vehicle) and then transferring the ownership of the property in the future by selling the shares in the SPV rather than the property itself, with the result that stamp duty is paid at 0.5% rather than SDLT at, now, 7%. Annual charge The annual charge is payable by non-natural persons, i.e. companies and other bodies corporate, collective investment vehicles and partnerships with one or more such entities as partners. One of the major criticisms at the time of Budget 2012 was that there are many other reasons, apart from tax avoidance, why someone may want to buy property through a company, e.g. maintaining anonymity, inheritance tax planning, protecting ownership, or to comply with laws in overseas jurisdictions. Therefore the Government's stated aim is to target the annual charge at situations where tax avoidance is a significant factor whilst minimising the impact for bona fide businesses. The current exclusion for bona fide property development businesses only applies where the property was purchased with the intention of re-development and re-sale by a business which has been operating for a minimum of two years. Concerns have been raised about the narrowness of this exclusion and so the Government is requesting views as to how bona fide businesses can be unaffected whilst targeting tax avoidance. Whether this can be done satisfactorily remains doubtful. The charge applies to residential property as well as the residential elements of a mixed-used property (in the same way that the new 15% SDLT rate does). If the property is only owned by a relevant non-natural person for part of a year, then the charge is applied pro-rata. The value of the property relevant for determining whether the charge applies and the amount of the charge is: the market value of the property interest on 1 April 2012 (if the property was owned at that date) the market value on acquisition, if later; or the market value on any later creation or cessation of a relevant subordinate property interest Properties will be revalued every five years and, as the charge is self-assessed, HMRC will expect to see a valuation obtained by a taxpayer from a suitably qualified valuer with penalties imposed for getting it wrong. However to mitigate this it is currently suggested that HMRC and the Valuation Office Agency will offer a pre-return valuation checking service. The rate of the annual charge is currently proposed as follows: Property Value Annual Charge 2012-13 £2,000,001 - £5,000,000 £5,000,001 - £10,000,000 £10,000,001 - £20,000,000 £20,000,001+ Annual Charge 2012-13 £15,000 £35,000 £70,000 £140,000 Given the 'cliff-edge' nature of the charge, taxpayers can expect HMRC to look closely at any valuations which fall near the band margins. The annual charge will be linked to the CPI and uprated in April each year based upon the previous September's CPI. Whether the rates of charge are high enough to persuade people to remove property from companies and other envelopes remains to be seen. Extension of CGT The aim of the extension is "to support the annual charge by creating a further deterrent to enveloping and to create more equal tax treatment between UK residents and non-residents." This will again apply to residential property worth over £2m held by non-resident, non-natural persons. However the definition of non-natural persons for CGT purposes appears to be wider than that for the annual charge as it encompasses trustees and personal representatives. It remains to be seen how this will be resolved. CGT will not just apply to gains made on the disposal of the property itself, but also to gains on the disposal of assets that directly or indirectly represent relevant UK residential property, e.g. shares, interests or securities in a property-owning company where more than 50% of the value of the asset is derived from UK residential property. One key point to note is that the CGT extension will apply to the total gain accrued during the period of ownership, not just the portion of the gain accrued from the date that the new legislation comes into force. This means that existing trust and company structures will either need to be wound up or restructured in order to establish an up to date base cost. There are a number of possibilities which can provide a solution and it is not entirely clear how HMRC will enforce the charge, although hopefully this will be made clear in the legislation. Conclusion As these changes are still the subject of consultation they may change before implementation. However they give a strong indication of the Government's thinking. Anyone who is likely to be adversely affected by these changes is encouraged to respond to the consultation before it closes on 23 August 2012. Should the proposals be enacted in their current form, enveloping high value residential property will become much more expensive in the future. ]]>{85DE14B8-4C73-4F53-A38A-7CC13DDEA962}https://www.shoosmiths.co.uk/client-resources/legal-updates/capital-allowances-new-rules-introduced-2222.aspxCapital Allowances: New rules introduced Property owners can claim tax relief, known as capital allowances on qualifying plant and machinery when they purchase a building which incorporates such plant and machinery The tax legislation refers to such plant and machinery as fixtures. The allowances range from 100 percent for expenditure on environmentally beneficial plant to 8 percent on expenditure on integral features, such as electrical systems. Depending on the nature of the building and the tax-rate involved, the savings on the acquisition of a building can be significant. Failure to take the capital allowances position into account can have serious consequences both for the seller and the buyer. If capital allowances are relevant then the contract should provide a mechanism for apportioning the price between the land and the fixtures. Pre 1 April 2012 position For properties acquired before 1 April 2012, all the buyer had to do was show that he had incurred capital expenditure on qualifying expenditure. He/she could then claim capital allowances on 'a just and reasonable apportionment' of the expenditure he/she incurred. In some cases the contract set out an agreed apportionment between the parties. This was not binding on the Revenue and could be challenged if the apportionment did not, in the Revenue's opinion, reflect the value of the relevant plant and machinery. Alternatively, since 1997 the seller and the buyer could make an election to apportion the price for capital allowances purposes. This election would bind the Revenue and establish the disposal value of fixtures on which the buyer could claim capital allowances. The election value could not exceed the original capital expenditure incurred by the seller or the disposal value. It did not apply to fixtures on which the seller had not claimed capital allowances, where the buyer could continue to claim capital allowances on a just and reasonable basis. Post 1 April 2012 position With effect from 1 April 2012, and subject to transitional rules, the seller must have claimed capital allowances on fixtures in a chargeable period before the sale in order for the buyer to be able to claim capital allowances. In addition, either an election must have been made within two years of the sale or an application must be made to the first-tier tribunal (FTT) to determine the disposal value of the fixtures ('fixed value requirement'). In practice, it is likely that the parties will sign an election, as they will not want the expense of going to the FTT. There is a narrowly defined exemption to the fixed value requirement, which applies where the seller of the property has included a disposal value for the fixtures, but the purchaser has not complied with the fixed value requirement. In this case, the purchaser should provide a written statement that the value of the fixtures was not agreed and that the time period for so doing has expired, as well as a written statement from the seller of the disposal value brought into account. It is thought that this is aimed at non-business purchasers. This means that in future it will be of paramount importance for the contract to clearly set out what procedure is to be followed in establishing the allowances. If this is not done, not only will the buyer be unable to claim capital allowances on fixtures, but if he/she sells the property nor will his/her buyer - which is likely to adversely affect the price of the property. Transitional rules A buyer purchasing property during the period 1 April 2012 to 31 March 2014 (for corporation tax) and 6 April 2012 and 5 April 2014 (for income tax), will not need to satisfy the new requirements if the seller has not claimed allowances. In these circumstances the buyer should obtain contractual confirmation that the seller has not, and will not, claim allowances in respect of the fixtures, and information on the capital allowances history of the property (so as to be able to make capital allowances claims and/or be able to ensure that a future buyer may make allowances claims). Wed, 20 Jun 2012 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ Property owners can claim tax relief, known as capital allowances on qualifying plant and machinery when they purchase a building which incorporates such plant and machinery The tax legislation refers to such plant and machinery as fixtures. The allowances range from 100 percent for expenditure on environmentally beneficial plant to 8 percent on expenditure on integral features, such as electrical systems. Depending on the nature of the building and the tax-rate involved, the savings on the acquisition of a building can be significant. Failure to take the capital allowances position into account can have serious consequences both for the seller and the buyer. If capital allowances are relevant then the contract should provide a mechanism for apportioning the price between the land and the fixtures. Pre 1 April 2012 position For properties acquired before 1 April 2012, all the buyer had to do was show that he had incurred capital expenditure on qualifying expenditure. He/she could then claim capital allowances on 'a just and reasonable apportionment' of the expenditure he/she incurred. In some cases the contract set out an agreed apportionment between the parties. This was not binding on the Revenue and could be challenged if the apportionment did not, in the Revenue's opinion, reflect the value of the relevant plant and machinery. Alternatively, since 1997 the seller and the buyer could make an election to apportion the price for capital allowances purposes. This election would bind the Revenue and establish the disposal value of fixtures on which the buyer could claim capital allowances. The election value could not exceed the original capital expenditure incurred by the seller or the disposal value. It did not apply to fixtures on which the seller had not claimed capital allowances, where the buyer could continue to claim capital allowances on a just and reasonable basis. Post 1 April 2012 position With effect from 1 April 2012, and subject to transitional rules, the seller must have claimed capital allowances on fixtures in a chargeable period before the sale in order for the buyer to be able to claim capital allowances. In addition, either an election must have been made within two years of the sale or an application must be made to the first-tier tribunal (FTT) to determine the disposal value of the fixtures ('fixed value requirement'). In practice, it is likely that the parties will sign an election, as they will not want the expense of going to the FTT. There is a narrowly defined exemption to the fixed value requirement, which applies where the seller of the property has included a disposal value for the fixtures, but the purchaser has not complied with the fixed value requirement. In this case, the purchaser should provide a written statement that the value of the fixtures was not agreed and that the time period for so doing has expired, as well as a written statement from the seller of the disposal value brought into account. It is thought that this is aimed at non-business purchasers. This means that in future it will be of paramount importance for the contract to clearly set out what procedure is to be followed in establishing the allowances. If this is not done, not only will the buyer be unable to claim capital allowances on fixtures, but if he/she sells the property nor will his/her buyer - which is likely to adversely affect the price of the property. Transitional rules A buyer purchasing property during the period 1 April 2012 to 31 March 2014 (for corporation tax) and 6 April 2012 and 5 April 2014 (for income tax), will not need to satisfy the new requirements if the seller has not claimed allowances. In these circumstances the buyer should obtain contractual confirmation that the seller has not, and will not, claim allowances in respect of the fixtures, and information on the capital allowances history of the property (so as to be able to make capital allowances claims and/or be able to ensure that a future buyer may make allowances claims). ]]>{B78301F0-AE51-4615-B138-1DD12A6319D6}https://www.shoosmiths.co.uk/client-resources/legal-updates/new-ir35-tests-2226.aspxNew IR35 Tests The intermediaries legislation, colloquially known as IR35, has been with us for about the last 12 years Broadly, it seeks to target individuals who provide their services through an intermediary (usually a company or partnership) in order to avoid being classified as employees. The benefit of such an arrangement for the individual, if successful, is that it reduces the tax payable by the individual, since they are able to extract profits from the intermediary in a more tax-efficient manner. The purpose of IR35 is to treat the individual as if he were an employee and subject the income in the intermediary to tax and national insurance. In determining whether IR35 applies, the usual case law tests determine whether the individual is an employee or self-employed. Whether or not IR35 applies has been the subject of a large number of tribunal cases, where the results of which are dependant on the facts presented at each tribunal. Business Entity Tests In an attempt to reduce the number of disputes over whether IR35 applies the Revenue has recently published its pilot business entity tests. The objective of these tests is to enable businesses to self-certify whether IR35 applies to them. It does not mean that the Revenue will accept the self-certification but is meant to give a greater degree of certainty to businesses. The aim of the tests is to categorise business into three risk bands: low, medium, and high. If the Revenue is satisfied that a business is outside of IR35 or in the low risk band, then it will take no further action. If a business falls into the medium or high risk band then the Revenue will look at the business in more detail to see if IR35 applies. There are twelve separate tests. These are as follows: do you have business premises do you need PI insurance can you increase income by working more efficiently have you spent more than £1,200 in advertising have you been employed on PAYE has your current client previously subjected your earnings to PAYE do you have a business plan and a business bank account do you have to put mistakes right at your own expense have you suffered bad debts do you invoice for work carried out do you have the right to send a substitute to carry out the work have you hired anyone in the last 24 months to carry out work that you have taken on Different scores are allocated to each test and depending on the cumulative score a business is then allocated to a particular risk band. Does this help matters? The reaction to the tests has, on the whole, been hostile. Generally, they are seen as adding an additional layer of complexity to what is already a grey area. Arguably, they do not deal with some of the most important points in determining whether IR35 applies. For example, the right for business to send a substitute is only allocated two points. However, in many cases this has been held to be a decisive factor in favour of the taxpayer. It therefore seems unlikely that the introduction of this pilot is going to resolve the contentious issues around IR35. Wed, 06 Jun 2012 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ The intermediaries legislation, colloquially known as IR35, has been with us for about the last 12 years Broadly, it seeks to target individuals who provide their services through an intermediary (usually a company or partnership) in order to avoid being classified as employees. The benefit of such an arrangement for the individual, if successful, is that it reduces the tax payable by the individual, since they are able to extract profits from the intermediary in a more tax-efficient manner. The purpose of IR35 is to treat the individual as if he were an employee and subject the income in the intermediary to tax and national insurance. In determining whether IR35 applies, the usual case law tests determine whether the individual is an employee or self-employed. Whether or not IR35 applies has been the subject of a large number of tribunal cases, where the results of which are dependant on the facts presented at each tribunal. Business Entity Tests In an attempt to reduce the number of disputes over whether IR35 applies the Revenue has recently published its pilot business entity tests. The objective of these tests is to enable businesses to self-certify whether IR35 applies to them. It does not mean that the Revenue will accept the self-certification but is meant to give a greater degree of certainty to businesses. The aim of the tests is to categorise business into three risk bands: low, medium, and high. If the Revenue is satisfied that a business is outside of IR35 or in the low risk band, then it will take no further action. If a business falls into the medium or high risk band then the Revenue will look at the business in more detail to see if IR35 applies. There are twelve separate tests. These are as follows: do you have business premises do you need PI insurance can you increase income by working more efficiently have you spent more than £1,200 in advertising have you been employed on PAYE has your current client previously subjected your earnings to PAYE do you have a business plan and a business bank account do you have to put mistakes right at your own expense have you suffered bad debts do you invoice for work carried out do you have the right to send a substitute to carry out the work have you hired anyone in the last 24 months to carry out work that you have taken on Different scores are allocated to each test and depending on the cumulative score a business is then allocated to a particular risk band. Does this help matters? The reaction to the tests has, on the whole, been hostile. Generally, they are seen as adding an additional layer of complexity to what is already a grey area. Arguably, they do not deal with some of the most important points in determining whether IR35 applies. For example, the right for business to send a substitute is only allocated two points. However, in many cases this has been held to be a decisive factor in favour of the taxpayer. It therefore seems unlikely that the introduction of this pilot is going to resolve the contentious issues around IR35. ]]>{C60F3340-30B3-4965-90BF-55BC90C6485F}https://www.shoosmiths.co.uk/client-resources/legal-updates/business-premises-renovation-allowance-an-update-2230.aspxBusiness Premises Renovation Allowance: An update Business Premises Renovation Allowance (BPRA) provides a 100 percent tax relief on any capital expenditure incurred on the conversion or refurbishment of empty business premises BPRA applies to individuals, corporates and trustees. The ability to gear up the investment and enhance the capital allowances means that it is being seen as an increasingly attractive investment, as well as a means of sheltering income. Fundamentals of BPRA A number of basic requirements have to be met for BPRA to be available. These relate to: the nature of the building qualifying costs the location of the building For the building to qualify it: must be in a designated disadvantaged area must have been empty for at least a year before renovation works begin must have been last used for the purposes of a trade, profession or vocation or as an office must not have been used as a dwelling must remain as business premises after the renovations have taken place Certain trades disqualified by the EU State Aid rules do not qualify for BPRA, such as fisheries and coal and steel industries. BPRA can be claimed on capital costs arising from: converting a qualifying building into qualifying business premises renovating a qualifying building that is, or will be, qualifying business premises capital repairs to qualifying business premises It cannot be claimed on the costs of acquiring the land on which the building sits. The building must be located in a designated disadvantaged area. Designated disadvantaged areas are detailed on the following web page: http://www.legislation.gov.uk/uksi/2007/107/pdfs/uksi_20070107_en.pdf Tax treatment Individuals and trustees can elect to set off 100 percent of the allowances against their income in the tax year in which expenditure is incurred. Any excess can be carried forward and set off against total income in the following tax year. For a company the rules are similar in that it can offset any losses in the property business against its other income and to the extent the losses are not relieved they can be carried forward and offset against future rental income. Any BPRA claimed may be clawed back if the property is sold, demolished, or ceases to be used for qualifying purposes within seven years after it was first used or first available and suitable for letting. Capital gains tax is payable if the sales proceeds exceed the cost of acquiring the building and the refurbishment costs. If the building is sold for less than the purchase price, there may be a restriction on a capital loss that can be claimed because of the income tax relief that has already been claimed on the renovation costs. Conclusion Whilst a BPRA investment can be an interesting alternative to more traditional forms of tax favoured investments, such as the Enterprise Investment Scheme and Venture Capital Trusts, it is worth noting that the actual amount of allowances which an investor will receive cannot be determined with certainty until the claim is finalised with the Revenue. Fri, 20 Apr 2012 00:00:00 +0100<![CDATA[Kate Featherstone ]]><![CDATA[ Business Premises Renovation Allowance (BPRA) provides a 100 percent tax relief on any capital expenditure incurred on the conversion or refurbishment of empty business premises BPRA applies to individuals, corporates and trustees. The ability to gear up the investment and enhance the capital allowances means that it is being seen as an increasingly attractive investment, as well as a means of sheltering income. Fundamentals of BPRA A number of basic requirements have to be met for BPRA to be available. These relate to: the nature of the building qualifying costs the location of the building For the building to qualify it: must be in a designated disadvantaged area must have been empty for at least a year before renovation works begin must have been last used for the purposes of a trade, profession or vocation or as an office must not have been used as a dwelling must remain as business premises after the renovations have taken place Certain trades disqualified by the EU State Aid rules do not qualify for BPRA, such as fisheries and coal and steel industries. BPRA can be claimed on capital costs arising from: converting a qualifying building into qualifying business premises renovating a qualifying building that is, or will be, qualifying business premises capital repairs to qualifying business premises It cannot be claimed on the costs of acquiring the land on which the building sits. The building must be located in a designated disadvantaged area. Designated disadvantaged areas are detailed on the following web page: http://www.legislation.gov.uk/uksi/2007/107/pdfs/uksi_20070107_en.pdf Tax treatment Individuals and trustees can elect to set off 100 percent of the allowances against their income in the tax year in which expenditure is incurred. Any excess can be carried forward and set off against total income in the following tax year. For a company the rules are similar in that it can offset any losses in the property business against its other income and to the extent the losses are not relieved they can be carried forward and offset against future rental income. Any BPRA claimed may be clawed back if the property is sold, demolished, or ceases to be used for qualifying purposes within seven years after it was first used or first available and suitable for letting. Capital gains tax is payable if the sales proceeds exceed the cost of acquiring the building and the refurbishment costs. If the building is sold for less than the purchase price, there may be a restriction on a capital loss that can be claimed because of the income tax relief that has already been claimed on the renovation costs. Conclusion Whilst a BPRA investment can be an interesting alternative to more traditional forms of tax favoured investments, such as the Enterprise Investment Scheme and Venture Capital Trusts, it is worth noting that the actual amount of allowances which an investor will receive cannot be determined with certainty until the claim is finalised with the Revenue. ]]>{342C8E9D-B561-452E-B2A2-31A98B7061BF}https://www.shoosmiths.co.uk/client-resources/legal-updates/budget-2012-attack-on-high-value-residential-development-2234.aspxBudget 2012: Attack on high value residential development In Budget 2012, the Chancellor launched an attack on high-value residential properties and perceived tax avoidance New 7% SDLT rate For residential property purchased for more than £2m, a new 7% rate of SDLT was announced. This applies to transactions with an effective date of on or after 22 March - the day following the Budget - subject to some transitional rules for those transactions where contracts were signed before that date. Coming so soon after the introduction of the 5% rate for residential property bought for more than £1m, this is another unwelcome SDLT increase for buyers of high-end residential property. This new 7% rate uses the traditional definition of 'residential property', which means that any mixed-use development is treated as non-residential, so only 'pure' residential properties will be caught by this higher charge. New 15% SDLT rate The Budget also contained an attack on perceived tax avoidance where a 'non-natural person' - for example a company, a partnership which has a corporate member, or a collective investment scheme - acquires residential property worth more than £2m. The new charge applies to any such transactions, with an effective date of on or after Budget day (21 March), subject to some transitional rules for contracts signed before Budget day. Because the Government is targeting what they see as tax avoidance, a tougher approach has been taken as to what is 'residential property'. Where a mixed-use development is purchased, an apportionment of the purchase price has to be made between the residential and non-residential elements. Once the apportionment is done, the residential element has to be analysed to see whether it consists of an interest in one or more single dwellings to which chargeable consideration of more than £2 million is attributable. For example, if a company buys a block of 10 identical flats for £10m, the new 15% SDLT rate will not apply, as the per-dwelling value is £1m. If, however, 10 identical flats are purchased for £25m, then the per-dwelling value is £2.5m, and so the new 15% rate will apply. Where the value of the individual flats differs, the process becomes more complicated. For example, if a company buys five flats for £5m, but one is worth £3m, and the remaining four are worth £500,000 each, the new 15% SDLT rate will apply to the £3m flat, but not to the remaining four flats. A further point to note is that the definition of six or more properties as 'non-residential' is not applicable to residential properties costing £2m or more. There is an exemption from this new 15% SDLT charge for 'property developers', providing certain conditions are met, one of which is that the purchasing entity has been carrying on a property development business for at least two years before the effective date of the transaction, which could cause problems for a number of developers. It remains to be seen if this will be amended as the legislation goes through Parliament. Currently there is no exemption for high-end residential property funds which will be caught by the new charge. Annual Charge In Budget 2012, the Chancellor announced that the Government will look at introducing an annual charge for certain non-natural persons (presumably those covered by the new 15% SDLT rate) which hold residential property worth over £2m. We do not have details of how this charge will work or how much it will be, and legislation will be included in Finance Bill 2013. Extension of capital gains tax The Government will also consult on extending the capital gains tax regime to disposals of UK residential property by non-resident, non-natural persons; and to disposals of shares or interests in such property, with the aim of this coming into force in April 2013. Again, we do not have any further detail at this stage. Conclusion Budget 2012 signalled a strong attack by the Government on those buying 'high-value' residential property in a way which - at least in the Government's eyes - avoids SDLT. Time will tell whether the legislation can be drafted in such a way to avoid catching innocent transactions, but anyone looking to purchase residential property worth more than £2m should consider carefully the impact of the new rules before doing so. Thu, 12 Apr 2012 00:00:00 +0100<![CDATA[Tom Wilde ]]><![CDATA[ In Budget 2012, the Chancellor launched an attack on high-value residential properties and perceived tax avoidance New 7% SDLT rate For residential property purchased for more than £2m, a new 7% rate of SDLT was announced. This applies to transactions with an effective date of on or after 22 March - the day following the Budget - subject to some transitional rules for those transactions where contracts were signed before that date. Coming so soon after the introduction of the 5% rate for residential property bought for more than £1m, this is another unwelcome SDLT increase for buyers of high-end residential property. This new 7% rate uses the traditional definition of 'residential property', which means that any mixed-use development is treated as non-residential, so only 'pure' residential properties will be caught by this higher charge. New 15% SDLT rate The Budget also contained an attack on perceived tax avoidance where a 'non-natural person' - for example a company, a partnership which has a corporate member, or a collective investment scheme - acquires residential property worth more than £2m. The new charge applies to any such transactions, with an effective date of on or after Budget day (21 March), subject to some transitional rules for contracts signed before Budget day. Because the Government is targeting what they see as tax avoidance, a tougher approach has been taken as to what is 'residential property'. Where a mixed-use development is purchased, an apportionment of the purchase price has to be made between the residential and non-residential elements. Once the apportionment is done, the residential element has to be analysed to see whether it consists of an interest in one or more single dwellings to which chargeable consideration of more than £2 million is attributable. For example, if a company buys a block of 10 identical flats for £10m, the new 15% SDLT rate will not apply, as the per-dwelling value is £1m. If, however, 10 identical flats are purchased for £25m, then the per-dwelling value is £2.5m, and so the new 15% rate will apply. Where the value of the individual flats differs, the process becomes more complicated. For example, if a company buys five flats for £5m, but one is worth £3m, and the remaining four are worth £500,000 each, the new 15% SDLT rate will apply to the £3m flat, but not to the remaining four flats. A further point to note is that the definition of six or more properties as 'non-residential' is not applicable to residential properties costing £2m or more. There is an exemption from this new 15% SDLT charge for 'property developers', providing certain conditions are met, one of which is that the purchasing entity has been carrying on a property development business for at least two years before the effective date of the transaction, which could cause problems for a number of developers. It remains to be seen if this will be amended as the legislation goes through Parliament. Currently there is no exemption for high-end residential property funds which will be caught by the new charge. Annual Charge In Budget 2012, the Chancellor announced that the Government will look at introducing an annual charge for certain non-natural persons (presumably those covered by the new 15% SDLT rate) which hold residential property worth over £2m. We do not have details of how this charge will work or how much it will be, and legislation will be included in Finance Bill 2013. Extension of capital gains tax The Government will also consult on extending the capital gains tax regime to disposals of UK residential property by non-resident, non-natural persons; and to disposals of shares or interests in such property, with the aim of this coming into force in April 2013. Again, we do not have any further detail at this stage. Conclusion Budget 2012 signalled a strong attack by the Government on those buying 'high-value' residential property in a way which - at least in the Government's eyes - avoids SDLT. Time will tell whether the legislation can be drafted in such a way to avoid catching innocent transactions, but anyone looking to purchase residential property worth more than £2m should consider carefully the impact of the new rules before doing so. ]]>{A30BAFEA-0142-40A6-B81F-A8388C07B2BA}https://www.shoosmiths.co.uk/client-resources/legal-updates/budget-summary-2012-2238.aspxBudget summary 2012 The Chancellor delivered the 2012 Budget yesterday (21 March). The following is a summary of the main tax points of interest The Finance Bill 2012 will be published on 29 March: BUSINESS TAXES Corporation Tax: from 1 April 2012, the main rate of corporation tax will be reduced by 2% to 24%. Planned decreases in April 2013 and 2014 remain so that the main rate will eventually be 22%. Small companies' rate: this will remain at 20%. Enterprise Management Incentives: the limit on qualifying EMI options an individual can hold will be increased to £250,000 as soon as possible, subject to State Aid approval. Legislation will be introduced in Finance Bill 2013 to allow gains made on shares acquired on or after 6 April 2012 through exercising EMI options to be eligible for entrepreneurs' relief. Company Cars: the appropriate percentage for cars emitting more than 75g of CO2 per kilometre will be increased by one percentage point to a maximum of 35% in 2014/15. Further increases, to a maximum of 37%, are planned for 2015/16 and 2016/17. From April 2016, the three percentage point diesel supplement will be removed. Car and Van Fuel Benefit Charge: the car fuel benefit charge multiplier will increase to £20,200 from 6 April 2012 and then by 2% above RPI for 2013/14. The van fuel benefit charge multiplier will be frozen at £550 for 2012/13 and then increase by RPI in 2013/14. Employer asset-backed pension contributions: previously announced legislation will be introduced to ensure that excess tax relief in respect of such contributions cannot arise. Controlled foreign companies (CFC): the Finance Bill 2012 will include legislation replacing the existing CFC regime with new rules effective for CFCs with accounting periods beginning on or after 1 January 2013. Profits will be outside the scope of the CFC rules if they meet the conditions set out in a 'gateway', which will include 'safe harbour' provisions. Exclusions will also apply to certain territories as well as low profits. Patent Box: from 1 April 2013, companies will be able to elect to apply a 10% corporation tax rate to a proportion (60% initially, increasing to 100% by April 2017) of profits attributable to patents and certain other qualifying IP. Capital allowances - fixtures: as announced at Budget 2011, from April 2012 the availability of capital allowances to a purchaser of a fixture will be conditional on businesses following a new mechanism for fixing a value for fixtures within two years of a sale. Enhanced capital allowances: the energy saving enhanced capital allowance will, subject to State Aid approval, be updated to include heat pump driven air curtains. Certain other technologies will be excluded. Capital allowances - cars: the 100% first-year allowance will be extended in Finance Bill 2013 until 31 March 2015 but the threshold for eligibility will be reduced to 95g of CO2 per kilometre and leased cars will no longer be eligible. From April 2015, the appropriate percentage will be 13% and will increase by two percentage points in 2016/17. The threshold for a main rate car will also be reduced to 130g/km. Bank Levy: as announced in Autumn Statement 2011, this will be 0.088% from 1 January 2012. This will increase to 0.105% from 1 January 2013. Climate change levy (CCL): from 1 April 2013, the CCL will be increased in line with RPI. Landfill tax: for disposals made on or after 1 April 2013, the standard rate will be increased to £72 per tonne. Air passenger duty (APD): Finance Bill 2013 will include measures to increase APD in line with RPI from 1 April 2013 and will be extended to flights taken on business jets. Research and development (R&amp;D) tax credits: as announced in Budget 2011, from 1 April 2012 the rate of R&amp;D tax credits for SMEs will increase to 225%, the limit of SME payable credit will be removed and the £10,000 minimum expenditure requirement will be abolished. As announced in Autumn Statement 2011, an "above the line" R&amp;D tax credit for larger companies, with a minimum rate of 9.1% before tax, will be introduced in Finance Bill 2013. Corporation tax reliefs: the Government will consult on legislation to take effect from 1 April 2013 on corporation tax reliefs for the production of British video games, TV animation programmes and high-end TV productions. PERSONAL TAXES Income Tax - rates: income tax rates for 2012/13 will remain unchanged but the additional rate of income tax will be reduced to 45% from April 2013 with the dividend additional rate and the dividend trust rate being reduced to 37.5% and the trust rate to 45%. Income Tax - personal allowance: as announced in Budget 2011, the personal allowance will increase for those aged under 65 to £8,105 for 2012/13 along with a corresponding decrease in the basic rate limit, to £34,370. The personal allowance will increase by a further £1,100 in April 2013 to £9,205 with the basic rate limit dropping to £32,245. The age-related allowances will not be increased and will be restricted to people born on or before 5 April 1948 for the £10,550 allowance and to people born on or before 5 April 1938 for the £10,660 allowance. Income Tax Reliefs: from 6 April 2013, any individual seeking to claim more than £50,000 of currently uncapped income tax reliefs in any one tax year will be subject to a cap of the greater of (i) £50,000 and (ii) 25% of the individual's income. National Insurance: the Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit will be aligned with the point at which higher rate income tax becomes payable, i.e. £41,450. Capital gains tax (CGT): the annual exempt amount will remain at £10,600 for 2012/13 and increase in line with the CPI from 6 April 2013. Seed Enterprise Investment Scheme (SEIS): as announced in the Autumn Statement 2011, the SEIS will be introduced giving 50% income tax relief for individuals making qualifying investments. Following consultation, certain changes to the proposed legislation have been made to allow companies to qualify if they have subsidiaries, to allow previous employees to qualify, to allow directors who have qualified under SEIS to continue to qualify under EIS, to remove reference to the holdings of other entities in calculating asset and employee tests, and to determine eligibility by reference to the age of the trade rather than age of the company. A capital gains tax exemption will also be introduced for gains realised in 2012/13 and invested through the SEIS in the same year. Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT): as announced in Budget 2011, Finance Bill 2012 will simplify the EIS and VCT regimes, including disregarding loan capital when determining if a person is 'connected' with a company, allowing certain preferential shares to qualify, removing the £500 minimum investment limit and remove the £1m limit on investment by a VCT in a single company not in partnership. A new 'disqualifying arrangements' test will be introduced to exclude companies set up for the purposes of accessing the relief; monies used to acquire shares in another company will not be regarded as being 'employed' for the purposes of a qualifying business activity. EIS and VCT - thresholds: as announced in Budget 2011, the EIS annual investment limit will be increased to £1 million from 6 April 2012; the employee limit will be raised to fewer than 250 employees; the size threshold increased to gross assets of no more than £15m before and £16m after investment; the annual investment limit for qualifying companies will increase to £5m. All these changes, bar the first, are subject to State Aid approval. Statutory residence test: as previously announced, this will not now take effect until 6 April 2013. Ordinary residence: this concept for tax purposes will be abolished from 6 April 2013. Non-domiciled individuals (non-doms): from 6 April 2012 non-doms will be able to bring overseas income and gains to the UK tax-free in order to make a commercial investment in a qualifying business. Also, the £30,000 annual charge will increase to £50,000 for those resident in the UK in 12 or more of the last 14 years. Some aspects of the existing remittance basis rules will also be simplified. Inheritance tax (IHT): as previously announced the nil-rate band will be frozen until April 2015 and then rise in line with the CPI. From 6 April 2012, where 10% or more of a deceased's net estate is left to charity, the rate of IHT will be reduced to 36%. IHT - trusts: the Government will consult on simplifying the calculation of IHT periodic and exit charges for trusts with legislation being included in Finance Bill 2013. Non-domiciled spouses and civil partners: the current IHT-exempt amount of £55,000 that a UK domiciled individuals can transfer to their non-UK domiciled spouse or civil partner will be increased in the Finance Bill 2013. Personal service companies and IR35: the Government will consult on proposals to require office holders or controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source. PROPERTY SDLT: a new 7% rate for purchases of residential property over £2m will apply for transactions with an effective date of on or after 22 March 2012. SDLT: a new 15% rate for purchases of residential property over £2m purchased by certain non-natural persons including companies, collective investment schemes and partnerships in which a non-natural person is a partner, will take effect from 21 March 2012. There are transitional rules where the contract was completed and signed by all parties on or before 21 March 2012. SDLT - annual charge: the Government will consult on introducing an annual charge from April 2013 for residential properties over £2m owned by certain non-natural persons. SDLT - sub-sales: with effect from 21 March 2012, legislation will be introduced which makes it clear that the grant or assignment of an option cannot be a 'transfer of rights' for sub-sale purposes. SDLT - leases: the Government will explore through the SDLT working group, with a view to including in Finance Bill 2013, ways to simplify the SDLT rules around abnormal rent increases, substantial performance of an agreement for lease or a lease that continues after a fixed term. CGT - non-resident non-natural persons: the Government will consult on introducing a CGT charge on the disposal of UK residential property, and shares or interests in such property, owned by non-resident non-natural persons with the aim of it coming into force in April 2013. Business Premises Renovation Allowance (BPRA): as previously announced the BPRA scheme will be extended until April 2017. Enterprise Zones (EZs): as announced in Autumn Statement 2011, 100% first-year allowances for trading companies investing in plant and machinery for use primarily in designated assisted areas within EZs will be available. VAT Thresholds: the registration threshold will be increased to £77,000 and the deregistration threshold to £75,000. The registration and deregistration threshold for relevant acquisitions from other EU Member States will be increased to £77,000. Threshold - overseas businesses: the VAT registration threshold for businesses not established in the UK will be removed from 1 December 2012. Low value consignment relief (LVCR): as previously announced, LVCR for goods sent to the UK from the Channel Islands will be abolished from 1 April 2012. Cost-sharing exemption: as previously announced, a VAT exemption for services shared between VAT exempt bodies including universities, charities and banks will be introduced. Online filing: this will be introduced in relation to registration, deregistration and changes to business details, with effect from 31 October 2012. Education providers: the Government will consult and review the VAT treatment of education to ensure that commercial universities are treated fairly. Correcting anomalies and closing loopholes: secondary legislation will be introduced in summer 2012 to take effect from 1 October 2012 to address anomalies relating to alterations to listed and non-listed buildings, and self-storage and other forms of storage. A number of loopholes will also be closed by applying VAT, where it does not already apply, to hot food and sports drinks; by making it clear that VAT applies to the rental of hairdressers' chairs and the sale of cold food for consumption on the supplier's premises; and ensuring that the purchase of holiday caravans is taxed consistently at the standard rate. HMRC and TAX ADMINISTRATION General anti-abuse rule (GAAR): the Government will consult in summer 2012 with a view to introducing legislation in Finance Bill 2013 to implement a GAAR based on the recommendations of the Aaronson Report. Disclosure of tax avoidance schemes (DOTAS): there will be a formal consultation over summer 2012 on extending the 'hallmarks' so as to capture avoidance schemes that do not have to currently be notified. Draft regulations will follow later in the year. UK/Switzerland agreement: legislation will be introduced to give effect to the agreement between the UK and Switzerland signed on 6 October 2011 on cooperation in tax matters. Tax agents: dishonest conduct: from 1 April 2013, legislation will be introduced which provides for a civil penalty against dishonest tax agents, Tribunal approved access to an agent's working papers and the power to publish the details of agents that have been penalised. Tax simplification for small businesses: the Government will consult on introducing a voluntary cash accounting basis for unincorporated businesses with turnover of up to £77,000 per annum with a view to legislation in Finance Bill 2013. It will also consult on proposals to introduce a disincorporation relief. Penalties: Finance Bill 2013 will include the power to increase fixed penalties in line with inflation. Personal Tax Statement: from 2014/15, taxpayers will be provided with a new Personal Tax Statement which will detail the income tax and national insurance contributions they have paid, their average tax rates, and how this contributes to public spending. Integration of Income Tax and National Insurance: a detailed consultation will be launched setting out a broad range of possible options. Thu, 22 Mar 2012 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ The Chancellor delivered the 2012 Budget yesterday (21 March). The following is a summary of the main tax points of interest The Finance Bill 2012 will be published on 29 March: BUSINESS TAXES Corporation Tax: from 1 April 2012, the main rate of corporation tax will be reduced by 2% to 24%. Planned decreases in April 2013 and 2014 remain so that the main rate will eventually be 22%. Small companies' rate: this will remain at 20%. Enterprise Management Incentives: the limit on qualifying EMI options an individual can hold will be increased to £250,000 as soon as possible, subject to State Aid approval. Legislation will be introduced in Finance Bill 2013 to allow gains made on shares acquired on or after 6 April 2012 through exercising EMI options to be eligible for entrepreneurs' relief. Company Cars: the appropriate percentage for cars emitting more than 75g of CO2 per kilometre will be increased by one percentage point to a maximum of 35% in 2014/15. Further increases, to a maximum of 37%, are planned for 2015/16 and 2016/17. From April 2016, the three percentage point diesel supplement will be removed. Car and Van Fuel Benefit Charge: the car fuel benefit charge multiplier will increase to £20,200 from 6 April 2012 and then by 2% above RPI for 2013/14. The van fuel benefit charge multiplier will be frozen at £550 for 2012/13 and then increase by RPI in 2013/14. Employer asset-backed pension contributions: previously announced legislation will be introduced to ensure that excess tax relief in respect of such contributions cannot arise. Controlled foreign companies (CFC): the Finance Bill 2012 will include legislation replacing the existing CFC regime with new rules effective for CFCs with accounting periods beginning on or after 1 January 2013. Profits will be outside the scope of the CFC rules if they meet the conditions set out in a 'gateway', which will include 'safe harbour' provisions. Exclusions will also apply to certain territories as well as low profits. Patent Box: from 1 April 2013, companies will be able to elect to apply a 10% corporation tax rate to a proportion (60% initially, increasing to 100% by April 2017) of profits attributable to patents and certain other qualifying IP. Capital allowances - fixtures: as announced at Budget 2011, from April 2012 the availability of capital allowances to a purchaser of a fixture will be conditional on businesses following a new mechanism for fixing a value for fixtures within two years of a sale. Enhanced capital allowances: the energy saving enhanced capital allowance will, subject to State Aid approval, be updated to include heat pump driven air curtains. Certain other technologies will be excluded. Capital allowances - cars: the 100% first-year allowance will be extended in Finance Bill 2013 until 31 March 2015 but the threshold for eligibility will be reduced to 95g of CO2 per kilometre and leased cars will no longer be eligible. From April 2015, the appropriate percentage will be 13% and will increase by two percentage points in 2016/17. The threshold for a main rate car will also be reduced to 130g/km. Bank Levy: as announced in Autumn Statement 2011, this will be 0.088% from 1 January 2012. This will increase to 0.105% from 1 January 2013. Climate change levy (CCL): from 1 April 2013, the CCL will be increased in line with RPI. Landfill tax: for disposals made on or after 1 April 2013, the standard rate will be increased to £72 per tonne. Air passenger duty (APD): Finance Bill 2013 will include measures to increase APD in line with RPI from 1 April 2013 and will be extended to flights taken on business jets. Research and development (R&amp;D) tax credits: as announced in Budget 2011, from 1 April 2012 the rate of R&amp;D tax credits for SMEs will increase to 225%, the limit of SME payable credit will be removed and the £10,000 minimum expenditure requirement will be abolished. As announced in Autumn Statement 2011, an "above the line" R&amp;D tax credit for larger companies, with a minimum rate of 9.1% before tax, will be introduced in Finance Bill 2013. Corporation tax reliefs: the Government will consult on legislation to take effect from 1 April 2013 on corporation tax reliefs for the production of British video games, TV animation programmes and high-end TV productions. PERSONAL TAXES Income Tax - rates: income tax rates for 2012/13 will remain unchanged but the additional rate of income tax will be reduced to 45% from April 2013 with the dividend additional rate and the dividend trust rate being reduced to 37.5% and the trust rate to 45%. Income Tax - personal allowance: as announced in Budget 2011, the personal allowance will increase for those aged under 65 to £8,105 for 2012/13 along with a corresponding decrease in the basic rate limit, to £34,370. The personal allowance will increase by a further £1,100 in April 2013 to £9,205 with the basic rate limit dropping to £32,245. The age-related allowances will not be increased and will be restricted to people born on or before 5 April 1948 for the £10,550 allowance and to people born on or before 5 April 1938 for the £10,660 allowance. Income Tax Reliefs: from 6 April 2013, any individual seeking to claim more than £50,000 of currently uncapped income tax reliefs in any one tax year will be subject to a cap of the greater of (i) £50,000 and (ii) 25% of the individual's income. National Insurance: the Class 1 Upper Earnings Limit and the Class 4 Upper Profits Limit will be aligned with the point at which higher rate income tax becomes payable, i.e. £41,450. Capital gains tax (CGT): the annual exempt amount will remain at £10,600 for 2012/13 and increase in line with the CPI from 6 April 2013. Seed Enterprise Investment Scheme (SEIS): as announced in the Autumn Statement 2011, the SEIS will be introduced giving 50% income tax relief for individuals making qualifying investments. Following consultation, certain changes to the proposed legislation have been made to allow companies to qualify if they have subsidiaries, to allow previous employees to qualify, to allow directors who have qualified under SEIS to continue to qualify under EIS, to remove reference to the holdings of other entities in calculating asset and employee tests, and to determine eligibility by reference to the age of the trade rather than age of the company. A capital gains tax exemption will also be introduced for gains realised in 2012/13 and invested through the SEIS in the same year. Enterprise Investment Scheme (EIS) and Venture Capital Trusts (VCT): as announced in Budget 2011, Finance Bill 2012 will simplify the EIS and VCT regimes, including disregarding loan capital when determining if a person is 'connected' with a company, allowing certain preferential shares to qualify, removing the £500 minimum investment limit and remove the £1m limit on investment by a VCT in a single company not in partnership. A new 'disqualifying arrangements' test will be introduced to exclude companies set up for the purposes of accessing the relief; monies used to acquire shares in another company will not be regarded as being 'employed' for the purposes of a qualifying business activity. EIS and VCT - thresholds: as announced in Budget 2011, the EIS annual investment limit will be increased to £1 million from 6 April 2012; the employee limit will be raised to fewer than 250 employees; the size threshold increased to gross assets of no more than £15m before and £16m after investment; the annual investment limit for qualifying companies will increase to £5m. All these changes, bar the first, are subject to State Aid approval. Statutory residence test: as previously announced, this will not now take effect until 6 April 2013. Ordinary residence: this concept for tax purposes will be abolished from 6 April 2013. Non-domiciled individuals (non-doms): from 6 April 2012 non-doms will be able to bring overseas income and gains to the UK tax-free in order to make a commercial investment in a qualifying business. Also, the £30,000 annual charge will increase to £50,000 for those resident in the UK in 12 or more of the last 14 years. Some aspects of the existing remittance basis rules will also be simplified. Inheritance tax (IHT): as previously announced the nil-rate band will be frozen until April 2015 and then rise in line with the CPI. From 6 April 2012, where 10% or more of a deceased's net estate is left to charity, the rate of IHT will be reduced to 36%. IHT - trusts: the Government will consult on simplifying the calculation of IHT periodic and exit charges for trusts with legislation being included in Finance Bill 2013. Non-domiciled spouses and civil partners: the current IHT-exempt amount of £55,000 that a UK domiciled individuals can transfer to their non-UK domiciled spouse or civil partner will be increased in the Finance Bill 2013. Personal service companies and IR35: the Government will consult on proposals to require office holders or controlling persons who are integral to the running of an organisation to have PAYE and NICs deducted at source. PROPERTY SDLT: a new 7% rate for purchases of residential property over £2m will apply for transactions with an effective date of on or after 22 March 2012. SDLT: a new 15% rate for purchases of residential property over £2m purchased by certain non-natural persons including companies, collective investment schemes and partnerships in which a non-natural person is a partner, will take effect from 21 March 2012. There are transitional rules where the contract was completed and signed by all parties on or before 21 March 2012. SDLT - annual charge: the Government will consult on introducing an annual charge from April 2013 for residential properties over £2m owned by certain non-natural persons. SDLT - sub-sales: with effect from 21 March 2012, legislation will be introduced which makes it clear that the grant or assignment of an option cannot be a 'transfer of rights' for sub-sale purposes. SDLT - leases: the Government will explore through the SDLT working group, with a view to including in Finance Bill 2013, ways to simplify the SDLT rules around abnormal rent increases, substantial performance of an agreement for lease or a lease that continues after a fixed term. CGT - non-resident non-natural persons: the Government will consult on introducing a CGT charge on the disposal of UK residential property, and shares or interests in such property, owned by non-resident non-natural persons with the aim of it coming into force in April 2013. Business Premises Renovation Allowance (BPRA): as previously announced the BPRA scheme will be extended until April 2017. Enterprise Zones (EZs): as announced in Autumn Statement 2011, 100% first-year allowances for trading companies investing in plant and machinery for use primarily in designated assisted areas within EZs will be available. VAT Thresholds: the registration threshold will be increased to £77,000 and the deregistration threshold to £75,000. The registration and deregistration threshold for relevant acquisitions from other EU Member States will be increased to £77,000. Threshold - overseas businesses: the VAT registration threshold for businesses not established in the UK will be removed from 1 December 2012. Low value consignment relief (LVCR): as previously announced, LVCR for goods sent to the UK from the Channel Islands will be abolished from 1 April 2012. Cost-sharing exemption: as previously announced, a VAT exemption for services shared between VAT exempt bodies including universities, charities and banks will be introduced. Online filing: this will be introduced in relation to registration, deregistration and changes to business details, with effect from 31 October 2012. Education providers: the Government will consult and review the VAT treatment of education to ensure that commercial universities are treated fairly. Correcting anomalies and closing loopholes: secondary legislation will be introduced in summer 2012 to take effect from 1 October 2012 to address anomalies relating to alterations to listed and non-listed buildings, and self-storage and other forms of storage. A number of loopholes will also be closed by applying VAT, where it does not already apply, to hot food and sports drinks; by making it clear that VAT applies to the rental of hairdressers' chairs and the sale of cold food for consumption on the supplier's premises; and ensuring that the purchase of holiday caravans is taxed consistently at the standard rate. HMRC and TAX ADMINISTRATION General anti-abuse rule (GAAR): the Government will consult in summer 2012 with a view to introducing legislation in Finance Bill 2013 to implement a GAAR based on the recommendations of the Aaronson Report. Disclosure of tax avoidance schemes (DOTAS): there will be a formal consultation over summer 2012 on extending the 'hallmarks' so as to capture avoidance schemes that do not have to currently be notified. Draft regulations will follow later in the year. UK/Switzerland agreement: legislation will be introduced to give effect to the agreement between the UK and Switzerland signed on 6 October 2011 on cooperation in tax matters. Tax agents: dishonest conduct: from 1 April 2013, legislation will be introduced which provides for a civil penalty against dishonest tax agents, Tribunal approved access to an agent's working papers and the power to publish the details of agents that have been penalised. Tax simplification for small businesses: the Government will consult on introducing a voluntary cash accounting basis for unincorporated businesses with turnover of up to £77,000 per annum with a view to legislation in Finance Bill 2013. It will also consult on proposals to introduce a disincorporation relief. Penalties: Finance Bill 2013 will include the power to increase fixed penalties in line with inflation. Personal Tax Statement: from 2014/15, taxpayers will be provided with a new Personal Tax Statement which will detail the income tax and national insurance contributions they have paid, their average tax rates, and how this contributes to public spending. Integration of Income Tax and National Insurance: a detailed consultation will be launched setting out a broad range of possible options. ]]>{C801DF49-1E8C-44E0-856E-865CC0D40533}https://www.shoosmiths.co.uk/client-resources/legal-updates/civil-investigation-of-fraud-by-the-revenue-2242.aspxCivil investigation of fraud by the revenue As part of its ongoing campaign to close the tax-gap, and running alongside its campaigns against various business sectors suspected of not paying enough tax, the Revenue has issued a revised Code of Practice 9 (COP9). COP9 sets out the Revenue's procedures for dealing with civil fraud and will come into effect on 31 January 2012. How does the new COP9 work? Where the Revenue suspects that a person has committed tax fraud it will write to them offering a contractual disclosure facility (CDF). Under the CDF the person has three options: owning up to fraud: the CDF route deciding not to own up to fraud: the denial route not replying to the Revenue: the non-co-operation route If the taxpayer decides to take the CDF route he/she must: tell the Revenue about the tax that has been evaded within 60 days of being offered the contract provide a full report of the fraud confirm that full and accurate details have been provided pay all taxes, interest and penalties due stop the fraudulent activity immediately The benefit of signing a CDF contract is that the taxpayer should end up paying lower penalties. If the taxpayer decides to take the denial or non-disclosure route, the Revenue is likely to start either a civil or criminal investigation into their tax affairs. Even if the taxpayer signs the CDF contract he/she can still be prosecuted if he/she makes a materially false statement, fails to make proper disclosure, or fails to provide the formal report and certificates of compliance, and pay the tax. As well as the Revenue writing to the taxpayer with a CDF offer, a taxpayer can voluntarily make an online disclosure of fraud. Potential issues with the new system The revised COP9 represents a considerable hardening of the Revenue's attitude towards instances of fraud. The previous COP9 procedure was concerned with establishing the amount of tax not paid and did not depend on the taxpayer admitting to fraud. Clearly, the up-front admission of fraud could have potentially adverse consequences for the tax-payer concerned. In complex cases, or cases which go back over many years, 60 days is unlikely to be sufficient to establish all the facts. HMRC guidance says that a taxpayer only has to make an outline disclosure within 60 days from the information reasonably available in that time. The rest can be provided in a timescale agreed with the Revenue. This still leaves open the possibility that, if the taxpayer is not in a position to provide full and complete information and he/she is concerned about what the Revenue may regard as reasonably available that he/she may be reluctant to sign a CDF contract, as any material omission could lead to a criminal prosecution. In addition, the online disclosure facility makes it clear that the Revenue does not have to offer the taxpayer a CDF contract. The taxpayer cannot be certain what the outcome of his/her disclosure will be. Given the various uncertainties a taxpayer may want to consider making a disclosure under the Liechtenstein Disclosure Facility, which guarantees immunity from prosecution. This cannot be done if the Revenue has written to the taxpayer under COP9 or has started criminal proceedings, but could be an alternative to voluntary disclosure under COP9. As always a taxpayer would be wise to take professional advice in those circumstances. Tue, 06 Mar 2012 00:00:00 Z<![CDATA[Kate Featherstone ]]><![CDATA[ As part of its ongoing campaign to close the tax-gap, and running alongside its campaigns against various business sectors suspected of not paying enough tax, the Revenue has issued a revised Code of Practice 9 (COP9). COP9 sets out the Revenue's procedures for dealing with civil fraud and will come into effect on 31 January 2012. How does the new COP9 work? Where the Revenue suspects that a person has committed tax fraud it will write to them offering a contractual disclosure facility (CDF). Under the CDF the person has three options: owning up to fraud: the CDF route deciding not to own up to fraud: the denial route not replying to the Revenue: the non-co-operation route If the taxpayer decides to take the CDF route he/she must: tell the Revenue about the tax that has been evaded within 60 days of being offered the contract provide a full report of the fraud confirm that full and accurate details have been provided pay all taxes, interest and penalties due stop the fraudulent activity immediately The benefit of signing a CDF contract is that the taxpayer should end up paying lower penalties. If the taxpayer decides to take the denial or non-disclosure route, the Revenue is likely to start either a civil or criminal investigation into their tax affairs. Even if the taxpayer signs the CDF contract he/she can still be prosecuted if he/she makes a materially false statement, fails to make proper disclosure, or fails to provide the formal report and certificates of compliance, and pay the tax. As well as the Revenue writing to the taxpayer with a CDF offer, a taxpayer can voluntarily make an online disclosure of fraud. Potential issues with the new system The revised COP9 represents a considerable hardening of the Revenue's attitude towards instances of fraud. The previous COP9 procedure was concerned with establishing the amount of tax not paid and did not depend on the taxpayer admitting to fraud. Clearly, the up-front admission of fraud could have potentially adverse consequences for the tax-payer concerned. In complex cases, or cases which go back over many years, 60 days is unlikely to be sufficient to establish all the facts. HMRC guidance says that a taxpayer only has to make an outline disclosure within 60 days from the information reasonably available in that time. The rest can be provided in a timescale agreed with the Revenue. This still leaves open the possibility that, if the taxpayer is not in a position to provide full and complete information and he/she is concerned about what the Revenue may regard as reasonably available that he/she may be reluctant to sign a CDF contract, as any material omission could lead to a criminal prosecution. In addition, the online disclosure facility makes it clear that the Revenue does not have to offer the taxpayer a CDF contract. The taxpayer cannot be certain what the outcome of his/her disclosure will be. Given the various uncertainties a taxpayer may want to consider making a disclosure under the Liechtenstein Disclosure Facility, which guarantees immunity from prosecution. This cannot be done if the Revenue has written to the taxpayer under COP9 or has started criminal proceedings, but could be an alternative to voluntary disclosure under COP9. As always a taxpayer would be wise to take professional advice in those circumstances. ]]>